A MODEL TO MEASURE AND COMPARE CONTRACTUAL GOVERNANCE OF E-COMMERCE IN FRANCHISE CHAINS

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A MODEL TO MEASURE AND COMPARE

CONTRACTUAL GOVERNANCE OF E-COMMERCE

IN FRANCHISE CHAINS

Based on a systematic literature review of contractual governance measurement models

Master Thesis

MSc BA Small Business & Entrepreneurship

University of Groningen, Faculty of Economics & Business

Duisenberg Building, Nettelbosje 2

9747 AE Groningen, The Netherlands

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_{supervisor: dr. E.P.M. Croonen}

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A MODEL TO MEASURE AND COMPARE

CONTRACTUAL GOVERNANCE OF E-COMMERCE

IN FRANCHISE CHAINS

Based on a systematic literature review of contractual governance measurement models

Total word count: 35.815 Word count, ex. appendices: 20.484

Abstract: With the arrival of the internet, e-commerce (e.g. sales through transactional websites) became possible, which can be the cause of many organisational problems within a franchise chain. To ensure success across the franchise chain and prevent negative behavioural outcomes resulting from e-commerce, such as franchisee’s noncompliance and opportunism, the franchisor can employ ex ante contractual governance. To comprehend the effects of different forms of contractual governance, a model to measure and compare clauses in franchise contracts is required. The goal of this study is to provide such a model.

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PREFACE

Before you lies the Master Thesis ‘A model to measure and compare contractual governance of e-commerce in franchise chains: Based on a systematic literature review of contractual governance measurement models’. It has been written to fulfil the graduation requirements of the master Small Business and Entrepreneurship at the University of Groningen (RUG). I was engaged in researching and writing this thesis from February 2018 to August 2018.

My specialization required me to perform an academic research, preferably with small businesses or entrepreneurs as subject. My personal preferences lean towards firm’s legal practices, as I have also accomplished a Master in law. I am specialized in international business law and law comparison.

I was given the opportunity to write my thesis under the supervision of dr. Evelien Croonen and dr. Maryse Brand as second supervisor, experts in the field of franchising. I had previously worked with them as student-assistant, on research into e-commerce practices in franchise chains. When my initial thesis subject and supervisor were no longer available, dr. Croonen asked me to develop the model which would help her in her own research. I gladly accepted, since this would combine my interest of small businesses and legal practices. Dr. Croonen continuously motivated me to think for myself, outside of the box, and pushed me to take a step further. Though this type of research was not easy for me, the result is partly due to the excellent supervision I was granted. I would like to thank dr. Brand and especially dr. Croonen for their guidance and interesting conversations during the process.

To my family and friends, I would like to thank you for your patience and kindness. For the past three years I have put myself and my education first, and hardly had time for you. Nevertheless, you never complained about my absence. And if I ever lost interest in finishing this project, you kept me motivated. In particular, I would like to thank my father Jillert, sister Yldou and friend Carolien, since they have provided me with interesting insights which helped me to look at the problem from different points of view.

My partner deserves a special note of thanks. I would have starved, locked myself up in my ‘cave’, and never asked for help. Thank you for feeding me, making me laugh, and helping me accomplish the most rewarding achievement in my life.

I hope you enjoy your reading,

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1. INTRODUCTION

This Master Thesis, as part of the Small Business and Entrepreneurship Master of Science in Business Administration, is focused on franchises. Franchising allows the franchisee, usually a small business owner, to operate as an independent company in its exclusive area, after payment and agreement to conform to the franchisor’s standards (Webber, 2013). As such, franchising is highly relevant as research topic in the context of the MSc Small Business and Entrepreneurship.

With the arrival of the internet, conducting business online became possible. This is called e-commerce. When a franchisor or franchisee starts a website, the online store reaches all the franchisor’s customers, including those in the exclusive area of franchisees. In this area, the franchisee is exclusively allowed to sell the franchisor’s product, yet an online store would infringe on this exclusivity. This can cause problems in the relationship between franchisor and franchisee. Two common problems are franchisee noncompliance and opportunism, also known as behavioural outcomes (Kashyap et al., 2012; and Kashyap and Murtha, 2017). To ensure success across the franchise system and prevent problems, the franchisor can employ ex

ante contractual governance. An important question is whether different forms of contractual

governance of e-commerce will influence franchisee’s undesirable behavioural outcomes, such as noncompliance and opportunism.

To examine contractual governance, contracts will need to be compared. However, at present, few researchers have studied the way this can be done. The definitions of indicators of contractual governance employed by researchers are often overlapping, which can lead to confusion. Moreover, the study of comparing the content of contractual clauses remains incomplete. As a result, the literature field deals with many unresolved issues regarding the effect of different contractual clauses. To comprehend the consequences of the different forms of contractual governance of e-commerce in a franchise context, such as opportunism and non-compliance by the franchisee, a model to measure and compare contractual governance of e-commerce in franchise contracts is required. The research goal of this study is to provide such a model.

As such, theory development is the appropriate course of action. For this research, the development approaches as described by Buede (2016), Gero and Kannengiesser (2004), de Leeuw (1996), Lewis (1998), and Mayer et al. (1995) are adapted and modified into four phases (see figure 1). These phases constitute the course of this study. Phase I is the review of the legal context. The systematic literature review (phase II) follows the approach by Tranfield et al. (2003). For the model design (phase III and IV), the Function-Behaviour-Structure (hereafter: FBS) framework by Gero and Kannengiesser (2004, 2014) is employed.

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2. PROBLEM DEFINITION

In this Chapter, the problems concerning contractual governance of e-commerce in franchise chains are defined. The concepts of franchising, e-commerce, e-encroachment, contractual governance, and its problems are introduced, after which the literature gap is defined. From this, the research goal and research (sub-)questions are derived and explained.

2.1 Problem background and analysis

In order to understand the problem, knowledge of the core concepts is necessary. First, franchising will need to be discussed. A clear definition is given, which characterizes franchising as an agreement between franchisor and franchisee. Next to that, the relationship between the franchisor and franchisee is discussed. This background will help to understand the relationship dynamics of franchising. The following section focuses on the e-commerce concept. It is important to identify the characteristics of e-commerce and the ways in which it can be used. Different types of e-commerce are discussed. This will help to determine the opportunities and difficulties regarding e-commerce. Next, e-encroachment is explained. The definition is given, as well as the difference between encroachment and cannibalization. This explanation functions as a clarification of the problem and will enhance the theoretical insight. Last, the contractual governance mechanism and its related problems are discussed. The definition is given, as well as an overview of the literature on the antecedents and effects of this type of governance. This will help to gain theoretical insight of the contractual governance between franchisor and franchisee.

2.1.1 Franchising

As organizational form, franchising is not a new concept. Its origin lies in the early eighteen hundreds. In the next century, business format franchising became the favourite method of retail expansion in the United States (Webber, 2013). More recently, over the past four decades franchising’s popularity has increased tremendously (Grewal et al., 2011). The number of established franchises, the employee growth rate, and economic output have been continually increasing over the past ten years (IHS REPORT, 2017).

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9 independently conduct business under the trade mark, name, or brand of the franchisor to the other party, named franchisee (Felstead, 1993; Webber, 2013).

Franchising is the agreement between independent undertakings, in which the franchisor grants the franchisees the right to conduct a business in accordance with the franchisor’s concept.

There are two types of franchising. Business format franchising occurs when the franchisor provides the franchisee with the franchise chain’s business format, including marketing, selling strategies, accounting, and human resource procedures. Product or distribution franchising is the agreement where the franchisor (manufacturer) permits the franchisees (retailers) to distribute the franchisor’s products, or the other way around, where the franchisor permits the franchisee to produce and sell the franchisor’s products (Webber, 2013). Both types are used in this research, because both types have online sales departments.

2.1.2 Electronic commerce

When internet first came to the commercial market in 1995 (Campbell-Kelly and Garcia-Swartz, 2013), an entire new option of practicing business was introduced. It can be used for electronic commerce (hereafter: e-commerce), as consumers use internet to gather information, compare, and buy products. In 1996, Zwass stressed the importance of this new medium. He defined electronic commerce as ‘the sharing of business information, maintaining business relationships and conducting business transactions by means of telecommunications networks’. In a franchising context, Rogers et al. (2007) define it as ‘transactions on the Internet, closed networks such as electronic data exchange, electronic trading of goods and services, online delivery of digital content, electronic banking, electronic fund transfers, direct marketing and virtual shopping malls […], e-mail, electronic retailing, bulletin boards, intranets, extranets, Web broadcasting, CD-Rom catalogues, pointof-service systems and security services such as firewalls and encryption’.

E-commerce is the sharing of information, maintaining relationships, and conducting transactions by means of the internet, in a business environment.

An interesting development in franchising occurs in the online sales department (i.e. on a transactional website (Perrigot and Pénard, 2013)). When a business performs both tasks of having a traditional store and an online channel, the risk is high that customers research online, and purchase offline (ROPO) (Kalyanam and Tsay, 2013). Or the other way around, where customers do research in the store and buy online, due to its convenience. This practice is called showrooming (Kalyanam and Tsay, 2013).

2.1.3 Electronic encroachment

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10 outlet loses customers when a new store is opened, thus experiences a sales reduction due to the arrival of the new outlet.

This could be classified as encroachment. Encroachment deals with territory problems. It is labelled as ‘the most explosive issue today in the franchising world’ (Sheridan and Gillespie, 1995). It can take different forms (Blair and LaFontaine, 2005; Vincent, 1998) and can harm the development of the franchise chain (Dunn, 2008; Morris, 2013; and Prewitt, 2008). Vincent (1998) defines territorial encroachment as ‘when a franchisor approves a new location, […] which is close enough to an existing location so that the new location draws away some of the customers from the existing location’ (p.30). Encroachment is far less of a problem in a company-owned chain. The franchisee is appointed an exclusive area in which it can independently conduct its business. This construction does not exist in company-owned chains. Encroachment is often confused with cannibalization. Whereas the latter is the reduction of sales, encroachment deals with territory problems. It can, however, be the cause of cannibalization.

When a franchisor starts a website, he opens the opportunity for customers to buy his products online. Thus, e-commerce creates a selling area which basically covers all exclusive areas obtained by the franchisees. This online store reaches all the franchisor’s customers, including those in the exclusive area of franchisees. Therefore, this is named electronic encroachment, or

e-encroachment (Cliquet and Voropanova, 2016). To better understand this concept, it will be

compared with the problems associated with traditional encroachment. Kalnins (2004) found that when franchisors opened new outlets, the global revenue increased, but the revenues of the incumbent outlets decreased. Consequently, the revenues of the independently owned franchised outlets decreased. This in contrast to the opening of new outlets in company-owned chains, where the global revenues increased. Through e-encroachment the franchisor does not open a traditional store, but a huge company-owned outlet that covers all the exclusive areas appointed to the franchisees. The problems arising from this situation are relatively easy to imagine.

E-encroachment is a territorial phenomenon in which customers are drawn away from an existing location by an online store.

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2.1.4 Problems between franchisor and franchisee

Franchise chains experience different strategic and managerial issues (Fontenot et al., 2006; Perrigot and Pénard, 2013) and legal issues (Branellec and Perrigot, 2013; Coldwell, 2003; and Vincent, 1998) opposed to wholly company-owned chains. The aforementioned showrooming and ROPO could have an effect on the relationship between franchisor and franchisee, when franchisee sees its sale shift to the franchisor’s online store, or the other way around (Biyalogorsky and Naik, 2003). The presence of the traditional store is simultaneous with the online store, yet they have different independent operators (i.e. the franchisor and franchisees), but they sell the same product under the same trademark. Therefore, franchise chains face these problems differently than company-owned chains.

Thus, within the relationship between franchisor and franchisee, incentives are not completely aligned. Although the success of the franchisee is beneficial for the franchisor, they both compete to appropriate the added value of the relationship. The franchisor’s goal is to maximize the chain sales, while the franchisee aims to optimize sales in its own territory (Nair et al., 2009). This is a source of many problems between the franchisor and franchisee (Spinelli and Birley, 1996). Problems in the relationship can also arise due to differences between franchisees in motivations and abilities to obey to the franchisor’s offerings (Dahlstrom and Nygaard, 1999). These problems can result in noncompliance with contractual terms or opportunistic behaviour from the franchisee (Kashyap et al., 2012; and Kashyap and Murtha, 2017). Compliance is the extent to which the agent adopts the principal’s procedures and policies in their relationship (Dahlstrom and Nygaard, 1999). Opportunism occurs when an agent forsakes on his obligations that are not explicitly expressed by the principal (Bergen et al., 1992), also known as “self-interest seeking with guile’ (Williamson, 1975). This includes cheating, lying, and calculated efforts, in order to increase individual profits. And thus, compliance can be high, even when opportunistic behaviour is present. Strong long-term relationships require a lack of opportunism from the agent, as well as compliance with established procedures and policies, and franchisor’s effort to ensure both (Kashyap et al., 2012; and Kashyap and Murtha, 2017).

2.1.5 Contractual and relational governance for preventing problems

To ensure success across the franchise system, the franchisor will want to effectively govern the relationship with its franchisees. Usually, the relationship between principal and agents is examined through the lens of agency theory. As described by Bergen et al (1992), ‘agency theory adopts an ex ante view of relations between principal and agent. Its emphasis is on precluding or minimizing ex post costs through an ex ante alignment of incentives’. They have identified two types of mechanisms to prevent the problems and decrease their accompanied transaction costs: formal contracts and relational governance mechanisms (Bajari and Tadelis, 2001; Baker, Gibbons, and Murphy, 1994 and 2002; Bradach and Eccles, 1989; Dyer, 1997; Dyer and Singh, 1998; Gulati and Nickerson, 2008; Mesquita and Brush, 2008; Poppo and Zenger, 2002; Segal, 1999). Thus, to govern the relationship with its franchisees, the franchisor can employ contractual and relational governance.

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12 noncompliance and opportunism, and their related transaction costs (Mitsuhashi et al., 2008; Sorenson and Sorenson, 2001; Williamson, 1981, Yin and Zajac, 2004). A formal contract, or governance by contract, is used ex ante to minimize conflicts through mutual agreement, while relational governance is employed ex post. The franchising literature in particular recognizes the importance of the formal contract as ex ante governance mechanism (Brickley and Dark, 1987; Combs and Ketchen, 1999; Shane, 1998) in which the franchisor can clarify its incentives. The obligations and duties towards the other party are captured in this document.

Contractual governance is the governance mechanism a principal can use in the form of a contract, to govern the relationship with an agent.

However, contracts are never complete, and hazards will always remain (Anderson and Dekker, 2005). Therefore, next to the formal contract, relational governance is employed. One of the methods of relational governance is monitoring. Monitoring the agent’s behaviour is essential for the principal to gain insight in its actions and outcomes (Jensen and Meckling, 1976). When these do not align with the principal’s goals, enforcement steps can be made (Mooi and Gilliand, 2013). These two components, monitoring and enforcement, are the ex post relational governance mechanisms a principal can employ to govern its relationship with the agent. These mechanisms require effort and cost from the principal.

2.1.6 Effects contractual and relational governance

Previous research has focused on the two different governance mechanisms, contractual and relational, and their effect on agent’s opportunism and compliance. The literature review on studies on contracting in interfirm relationships, performed by Kashyap and Murtha (2017), is a great starting point for studies into the effects. Furthermore, Kashyap et al. (2012) found that the ex post monitoring and enforcement efforts of the franchisor are shaped by ex ante deployment of explicit contracts and extracontractual incentives. Moreover, the higher the contractual completeness, the lower the ex post behaviour monitoring and enforcement efforts (Kashyap et al., 2012). However, greater contractual complexity results in higher ex post transaction costs (Barthélemy and Quélin, 2006). The extensiveness of contractual safeguards (Parkhe, 1993) is negatively related to the likelihood of contracts negotiations, and thus, ex

post transaction costs (Reuer and Ariño, 2002). Furthermore, when a principal predicts the contract to be less specific than it actually is, transaction costs are lowered (Mooi and Ghosh, 2010). Thus, there is a trade-off between ex ante contractual governance efforts and ex post relational governance. In franchise chains, it is important to pay regards to the contractual governance method that is employed, since it is common for the franchisor to use similar contracts for many different franchisees. This will affect the preferred form of ex post relational Moreover, combinations of these governance mechanisms have different effects on the agent’s opportunism and compliance (Kashyap et al., 2012; and Kashyap and Murtha, 2017). Opportunism is decreased by the employment of relational norms (Archol and Gundlach, 1999; Parkhe, 1993). Furthermore, Kashyap and Murtha (2017) divide contractual completeness into enforcement- and monitoring completeness. They found that ex ante monitoring completeness positively moderates the relationship between ex post monitoring and compliance. However,

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13 enforcement and compliance (Kashyap and Murtha, 2017). Trust and social identification, can reduce ex post renegotiation costs, by decreasing opportunism (Dyer and Singh, 1998). It can also enhance flexibility, since parties want to preserve their relationship and invest in their future together (Mesquita and Brush, 2008).

Parties will want to choose the level of completeness that is the most effective in minimizing transaction costs (Saussier, 2000) and the same can, logically, be said about any contractual governance form. In general, research shows that ex ante contractual governance tends to have opposite consequences than the objective the principal is attempting to achieve (Achrol and Gundlach, 1999; Jap and Ganesan, 2000; and Kashyap et al., 2012). Opposed to this, more studies have found significant positive results from the principal’s ex post monitoring efforts to affect the agent’s behaviour (Bello and Gilliland, 1997; Heide et al, 2007; John, 1984; and Murry and Heide, 1998).

In conclusion, the form of ex ante contractual governance (see figure 2, block 1) will influence the form of the ex post relational governance employed by the franchisor (see figure 2, block 2). This will affect the relational behavioural outcomes (see figure 2, block 3). Overall, behavioural outcomes affect the relationship between parties and the accompanied transaction costs. Thus, the franchise chain performance will be affected (see figure 2, block 4).

2.2 Research gap

From the abovementioned, it is derived that it is important to find an effective way in which contractual governance can be used to improve chain performance. The first step is to determine the effects of ex ante contractual governance mechanisms. For this, a model to measure and compare the different forms of contractual governance is necessary (see figure 2). Therefore, a theory development study (Buede, 2016; Gero and Kannengiesser, 2004; de Leeuw, 1996; Lewis, 1998; and Mayer et al., 1995) is considered appropriate.

Figure 2: Conceptual model. The red circle indicates the step which lacks a measurement model

2.3 Research goal and questions

From the above-mentioned literature gap, a main research question was derived. This will be the basis for this Master Thesis. The main research question is divided into three sub-questions, which each will be shortly introduced.

2.3.1. Research goal

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2.3.2 Main research question

To achieve the goal of this study, the main question to be answered is: ‘How can different forms

of contractual governance of e-commerce in franchise contracts be measured and compared?’.

To answer this question, several sub-questions will need to be asked and answered.

2.3.3 Research sub-questions

1. What is the law at hand concerning e-commerce in franchise chains? (SQ1)

The first sub-question is focused on the law. Knowledge of the law is inextricably linked with contractual clauses. To be able to study the content of e-commerce clauses in franchise contracts, a basic knowledge of the law concerning these concepts is required. These will be shortly addressed. This question will help to understand the underlying judicial possibilities.

2. What are the existing models to measure and compare contracts? (SQ2)

The second sub-question is focused on comparing contracts. To determine the effect of different forms of contractual governance, a model to divide the forms should be used. An overview of the literature into these models will be provided. This question will help to design a model to measure and compare different forms of contractual governance.

3. What are the characteristics of a valid and effective model for measuring and comparing e-commerce in franchise contracts? (SQ3)

The third sub-question is focused on the design and the evaluation of a new model. An explanation of the approach will be provided, and the steps of the process will be clarified. By analysis of franchise contracts, performance issues and constraints will be discovered and discussed, with which the model will be refined. This sub-question will help to set-up a step-by-step approach to design, test, and improve the newly designed model.

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3. METHODOLOGY

Chapter three will commence with a clarification of the chosen research approach, followed-up by a step-by-step explanation of the four phases of this study. Last, the research quality criteria, reliability and validity, will be discussed.

3.1 Theory development as research approach

To develop a model, one needs to have knowledge of the design process. Everyone who designs, aims at changing an existing situation into a preferred one (Simon, 1996). Simon (1996), who assembled the previous work done in the field of design and motivated many to follow, argued that essentially every academic pursuit is concerned with the process of design. It is what distinguishes science from professions. Whether it be engineering, architecture, business, law, or medicine, the design process is central and a discipline in itself (Cross, 2001). Design processes all have their own approach, yet share many characteristics. Simon (1996) defines the design process as a ’body of intellectually tough, analytic, partly formalizable, partly empirical, teachable doctrine’. Lewis (1998) argues that ‘literature reviews, data, and intuition form the bases of most theory development methods’ (p.456). This corresponds with Schön’s (1987) opinion about the design process, namely that it is a discipline that ‘is practiced by a reflective researcher, which rational and cognitive knowing is followed by action and reflection’. Mayer et al. (1995) and Buede (2016), overall, start with a literature review, followed by a requirements analysis, function analysis, design synthesis, verification and process output. The DOV-model (i.e. Diagnose, Design, and Change) by de Leeuw (1996) argues to first diagnose the problem, followed by a design of a solution, and implementing the solution via evaluation steps. The Function-Behaviour-Structure framework by Gero and Kannengiesser (2004) focuses on the (model) design, and starts with a requirements analysis, followed by the design of the preliminary structure, and a verification of this structure in practice.

3.2 Research phases

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3.2.1 Phase I: Review of legal context

The first phase of this study is to provide systematic insights into the current state of knowledge on the applicable law of e-commerce in franchise chains (SQ1). The approach as applied by practitioners of the law is followed (see figure 4) and the applicable databases are selected. First, the Treaty on the Functioning of the European Union is scanned for the legal definition of franchising and electronic commerce. Eur-Lex and rechtspraak.nl are consulted to find applicable cases of the European Court of Justice and Dutch Court concerning franchising and electronic commerce. An abstract scan is performed on the keywords (see table 1). Only the cases including at least the keywords ‘article 101(3) TFEU, ‘franchise’, and ‘electronic commerce’ are included and fully reviewed. Reference chasing, which consists of including the relevant articles and cases which are cited in the fully reviewed cases, but not found by the first search in the databases, was conducted. Reference chasing will increase the data sample size and serve as a check for the results based on the keywords. on The findings are discussed in Chapter four.

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3.2.2 Phase II: Systematic literature review

As Buede (2016), Lewis (1998) and Mayer et al. (1995) argue, a literature review is essential in the design process. Therefore, the second phase of this study is to provide systematic insights into the current state of knowledge on contractual governance of e-commerce in franchise chains. In this phase the sub-questions two (SQ2) is answered. A systematic literature review (Tranfield et al., 2003) is performed (see figure 5). An initial set op papers of the subject is provided by dr. E.P.M. Croonen, which consisted of three papers. Multiple electronic databases (i.e. Web of Science, Business Source Premier, and SmartCat) are consulted. For each concept, key words are defined in advance (see table 1). Only the articles published in journals with an Article Influence Score (hereafter: AIS) above 60 are considered for this study, due to their impact in their field. Results that appear twice or more will only be counted as one result. The search of the databases yielded 34 results, of which ten have an AIS above 60. The research continues with an abstract scan of the articles on the pre-determined keywords, to determine which articles are fully reviewed. Articles without these words are excluded from this study, due to their irrelevance. The review consists of a full read of the paper, and highlighting the sections discussing contractual governance, its indicators, and measurement methods. Next, reference chasing is conducted. This consists of including the papers in the review that are cited in the papers that are fully reviewed, but not found by the search in the database. Reference chasing will increase the data sample and serve as a check for the literature results based on the keywords. After examination, 36 papers are included, of which a table is developed with all found models and their characteristics (see table 2 and Appendix A).

Sub-question Keywords

SQ1 Franchise, electronic commerce, exclusive area, article 101(3) TFEU

SQ2 Contractual governance, contract(s), contract design, safeguards, relational contracting

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3.2.3 Phase III: Development of model design

The third phase is focused on the development of a model to measure and compare different forms of contractual governance, based on the law and literature review. The characteristics of a model, as mentioned in sub-question three (SQ3), are defined. Buede (2016), Gero and Kannengiesser (2004), de Leeuw (1996), Lewis (1998), and Mayer et al. (1995) all provide steps to perform the design process. For this research, the Function-Behaviour-Structure framework by Gero and Kannengiesser (2004, 2014) is chosen. This framework is the result of research into multiple design theories, and combines them into one generic design approach. Similar ideas have been developed by other researchers, independently of this design (Bhatta and Goel, 1994; Cascini et al., 2013; Cebrian-Tarrason et al., 2008). The functional, clear, step-by-step framework is applicable in any academic design process, and widely used in academic research (Christophe et al., 2010; Clayton et al., 1999; Colombo et al., 2007; Deng, 2002; Howard et al., 2008; Kruchten, 2008; and Yan, 1993). This framework is used in phase III and IV of this research (see figure 3). The development steps one and two are performed in the development phase, and steps three to eight in the refinement phase, which corresponds with the design approach by the aforementioned researchers. The development phase commences with a requirements analysis, from which functions and expected behaviour are derived. From this, the structure of the model and its application techniques are determined.

3.2.4 Phase IV: Refinement of model design

In the fourth phase the developed model is tested by applying it to the available data from franchising contracts, upon which an evaluation of the results refines the model design. This corresponds with Schön’s (1987) argument, as mentioned above. Sub-question three (SQ3) is answered. Steps three to eight from the FBS framework (Gero and Kannengiesser, 2004) are performed. The applicability of the elements of the designed model is tested, and the structure refined. This phase is performed with data from 156 franchise contracts, made available by the Dutch Franchise Organization (hereafter: DFA). Dutch franchise chains can voluntarily join this organization and receive (legal) help in exchange of a membership fee. Only the contracts of the chains with a transactional website are evaluated, due to their experience with online sales and the possible consequences in the relationship between franchisor and franchisees. The transactional website functions refer to those functions which enable the customer to buy the product. Furthermore, these websites give the customer the option of showrooming and create the problem of e-encroachment. This resulted in a sample of 57 contracts. After evaluation of the contracts, the structure of the model is reformulated.

3.3 Research quality criteria

For any research it is important to meet the quality criteria, to provide a basis for inter-subjective agreement on the research results (Aken et al., 2012). For theory development these are reliability and validity (Aken et al., 2012; Audi, 1998; Kirk and Miller, 1986; and Yin, 1994). To explain how these criteria are met in this study, they are discussed separately.

3.3.1 Reliability

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21 Miller, 1986). The outcomes should be found independent of certain characteristics that can influence the study. This will ensure the replicability in other studies (Yin, 1994).

First, the researcher reliability (Aken et al., 2012) is applicable to the entire research, and is pursued by supervision of this study by dr. E.P.M. Croonen (University of Groningen) and dr. M.J. Brand (University of Groningen). The reliability of the law is enhanced by information made available by A.G. Hart advocaten. Eisenhardt (1989) argues that inter-researcher discussions will help to increase confidence in the outcomes. To pursue the absence of researcher-bias, regular meetings and e-mail contact with aforementioned researchers took place. In these meetings, observations and findings were discussed. Furthermore, the researcher reliability is enhanced by an explicit representation of the procedures followed in this study (Yin, 1994). The data collection, analysis, and interpretation are discussed separately.

Second, method or quixotic reliability refers to the situation in which a single method of observation will yield a constant measurement (Aken et al., 2012; and Kirk and Miller, 1986). A systematic literature review, which is performed on contractual governance and methods to compare contracts, increases this type of reliability (Fraenkel et al., 2012). Furthermore, multiple data collection instruments are used. Web of Science, Business Source Premier, SmartCat, Eur-Lex, and rechtspraak.nl are employed to find (peer-reviewed) articles, books, conferences, regulations, treaties, and cases. This enhances the method reliability as well. Third, situation reliability is not applicable to the literature review (Aken et al., 2012). The situation in which the researcher finds the literature has no influence on the found literature, but the selection of the articles can be biased. The selection by AIS enhances this type of reliability. Furthermore, a bias could exist in collecting the data from the contracts. The contracts had to be assessed in a limited timeframe at the DFA’s office. It is prohibited to take the contracts elsewhere, due to the confidential nature of the contracts. To decrease the extent of bias, data is gathered by different researchers on several days. Furthermore, pictures of the relevant clauses are made, anonymized, and evaluated upon multiple occasions.

Fourth, diachronic reliability is the extent of the stability of an observation through time (Kirk and Miller, 1986). This is enhanced by taking into account that franchising has changed over time. Articles from before 1970 are read with caution, and evaluated in the context of the business format of that particular time. Articles that do not match the current business format form of franchising are excluded from the data. For the data collection from the contracts, the contracts dated before the arrival of the internet are excluded, due to the absence of e-commerce clauses.

Fifth, synchronic reliability is the extent of similarity of observations within the same time period (Kirk and Miller, 1986). With regards to commerce, a significant change found place in 1995 by the introduction of the internet. Articles from before 1995 are checked on similarities and differences, to extract invalid data. Irrelevant data is excluded. For the data collection from the contracts, only contracts dated after 1995 are included in the sample.

3.3.2 Validity

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22 First, construct validity is the extent to which the model measures what it is intended to measure (Audi, 1998). It is pursued by a full coverage of the concepts concerning contractual governance towards e-commerce in franchise chains. Additionally, the essential factor of the law is taken into account, in collaboration with A.G. Hart advocaten. To enhance the construct validity, this research was set up in collaboration with dr. E.P.M. Croonen (University of Groningen). The construct validity is also pursued by a phase-by-phase approach into the literature and data. Contradicting findings are discussed. The validity is enhanced by phase IV, in which the model is tested with data from franchise contracts.

Second, external validity refers to the generalizability of the research’s findings (Audi, 1998; and Yin, 1994). It is pursued by using a broad, general approach of the separate literature fields. The generalizability is decreased by the focus on e-commerce clauses. However, by extracting the steps of the model and applying them to a different field of focus, the generalizability could be larger. Furthermore, external validity is reduced by employment of the European law towards franchising and e-commerce. A law comparison with the judicial systems in which franchising and e-commerce are present would be a time-consuming and almost impossible task, not in the least due to the constant alteration of the applicable law. Moreover, validation of the developed model is performed with data from Dutch franchising contracts. The external validity could be enhanced by validation with data from international franchise contracts, although the law at hand would remain a problematic element.

Third, instrumental validity is provided when it can be shown that observations match those generated by an alternative, validated procedure (Kirk and Miller, 1986). It is pursued by using a systematic literature review (Fraenkel et al., 2012). Furthermore, usage of primary data from the franchise contracts increases the instrumental validity (Fraenkel et al., 2012). It could be enhanced even more by using an alternative procedure, such as interviewing the franchisor and franchisee (Fraenkel et al., 2012).

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4. PHASE I: REVIEW OF LEGAL CONTEXT

Chapter four provides a discussion of the law of e-commerce in franchising context, as mentioned in the methodology as phase I. A short summary of the most important findings is provided.

4.1 Legal context

When dealing with contracts, it is important to consider the law at hand. Regarding e-commerce, there are several restrictions a firm needs to comply to. Franchising, or dividing the market into areas in particular, is not allowed under Article 103 sub 3 Treaty of the Functioning of the European Union (TFEU). However, an exemption was made by the European Commission for agreements between firms which ‘contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit’ (Case 161/84, Pronuptia). This also applies to franchised firms (Guidelines on vertical restraints, 2010/C 130/01). Within these chains, it is common to appoint an exclusive area to the franchisee. In this area, he has the exclusive right to sell the franchisor’s products or services. This exclusivity can also entail that the franchisee is prohibited to offer his products outside of the appointed area (Guidelines on vertical restraints, 2010/C 130/01, numbers 51 and 52).

The aforementioned exemption by the European Commission does not apply when a hardcore restriction is violated. This means, franchising is not allowed when certain, pre-determined, restrictions are violated. With regards to e-commerce, it is not allowed to confine the exclusive area of the franchisee, save for some exceptions. One of those exceptions is the distinction between active and passive sale.

Passive sale is always allowed, and therefore, can confine the exclusive area of the franchisee. This, at least, entails general advertisements (which could also reach customers in other franchised areas) (Guidelines on vertical restraints, 2010/C 130/01, number 51), dealing with individual customers’ requests, and sale through internet (number 52). In principle, every franchisee is able to use the internet to sell its products. From this follows that a franchisee is not obligated to forward customers from another franchise area towards that franchisee. Furthermore, it is not allowed to determine a customer’s area via IP-address or GPS, and automatically forward him to the online sales department of ‘his’ franchisee (number 52). Moreover, the franchisee is not obligated to pay an extra fee for products that he sold online, as well as having to sell a certain percentage of his total sales online/offline (number 52). Active sale is to approach customers on the franchisee’s own initiative, by e-mail, or by advertising towards a specific group of customers. This can be restricted in the franchise agreement by the franchisor. Although it is not allowed to prohibit online sale in total, certain strict (quality) requirements can be demanded. This includes demanding a selling threshold for the offline store, to ensure its efficiency.

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24 the law, the franchisor does not infringe the exclusive area of the franchisee by opening an online store. However, this case is ruled in the Netherlands and is, therefore, not directly applicable in other countries. The outcome of similar cases in other countries can differ, as long as the (European) law is not harmonized.

Last, a little background on the methods used by lawyers is necessary (A.G. hart advocaten). When a conflict between two parties arises, a contract will usually provide guidance. After all, it is the written document of what the parties agreed upon. That said, when a dispute emerges, a lawyer will look for clauses that will help him in determining what is agreed upon. He will use the entire document for this. Thus, when e-commerce problems arise, he will first look if clauses with e-commerce terms are present. When this is not the case, he will look into those clauses that have anything to do with e-commerce. For example, when the contract lacks information on e-commerce, the lawyer will examine what is agreed upon advertisement or marketing. Online marketing is marketing, thus, could be used as a ground for solving the dispute.

Even so, when the dispute concerns a franchisee’s marketing activities outside his exclusive area, it is important to know what this area exactly is. If the contract is quiet about the exact perimeters, a loose interpretation of what both franchisor and franchisee consider as the area will be used. Thus, when a contract does not contain the information needed, the opinion of both parties of what they thought is agreed upon is taken into consideration. However, when the opinions are too far apart, it has to be ruled that the agreement lacks consensus on this point. Therefore, without consensus, there are not obligations towards the other party and you can’t keep the other party to it.

Thus, even though the law provides certain guidance and rules, the interpretation of a contract still depends on the consensus between the parties.

4.2 Summary of review of legal context (phase I)

The performed law review revealed the answer to sub-question one (SQ 1): What is the law at

hand concerning e-commerce in franchise chains?. Law prescribes that the franchisor is not

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5. PHASE II: SYSTEMATIC LITERATURE REVIEW

Chapter five provides the systematic literature review, as mentioned in the methodology as phase II. It commences with an overview of the results of the performed literature review. This Chapter concludes with a short summary of the most important findings.

5.1 Overlapping definitions of contractual governance forms

After review of the literature, an important aspect came to surface. Multiple studies measure forms of contractual governance. However, the definitions of these indicators employed by researchers are often overlapping. Some examples of the confusing definitions are discussed below.

Contractual completeness is defined as the lack of gaps to fill when contingencies arise (Williamson, 1979), ‘the extent to which all the relevant terms and clauses (contingencies) are specified in the contract’ (Solis-Rodriquez and Gonzalez-Diaz, 2012), and a contract which ‘simultaneously obviates opportunism through term specificity and bolsters adaptation through contingency adaptability (Luo, 2002). Williamson (1979) defines a complex contract as one in which ‘numerous contingencies are recognized, and appropriate adaptations by the parties are stipulated and agreed to in advance’. Poppo and Zenger (2002) argue complex contracts to ‘offer details on roles and responsibilities to be performed, specify procedures for monitoring and penalties for noncompliance, and determine outcomes or outputs to be delivered’. Barthélemy and Quélin (2006) deﬁne contract complexity as ‘the extent to which outsourcing contracts are composed of elaborate clauses’.

Looking at these definitions, Luo’s (2002) definition of contractual completeness matches with Williamson’s (1979) definition of contractual complexity. Furthermore, Barthélemy and Quélin (2006) definition of contractual complexity matches Williamson’s (1979) contractual completeness definition. Hendrikse and Windsperger (2011) provide the following resolution for the definition problem. They argue there is a trade-off between specific (sDR) and residual (rDR) decision rights in the contract. Specific rights are ‘the detailed specification of decision actions in the ex ante period’, otherwise called as outcome planning. Residual rights are those which ‘refer to planning of decision procedures which enable decision making about specific actions in the ex post period’, or procedural planning. They continue and argue that contractual completeness is the ratio between specific and residual rights in the contract (sDR/rDR) and contractual complexity is the sum of both (sDR + rDR).

These defining characteristics should be kept in mind when reading the summarizing table (see table 2 and Appendix A) in the following section.

5.2 Data synthesis of contractual governance and its measurement models

Even though the definitions of indicators of contractual governance might differ, the models are all employed to measure contractual governance. An overview of the literature, gathered by performing a systematic literature review, is provided in Appendix A. An aggregated version of the table is provided in table 2.

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26 provisions in the contracts is measured. A weighted average is calculated for the total presence of these provisions. An unweighted measure is occupied as well, but is found to resemble no differences with the weighted measure (Reuer and Arino, 2007; and Malhotra and Lumineau, 2011).

Multiple researchers have used an objective measure to analyse contractual governance (Achrol and Gundlach, 1999; Crocker and Reynolds, 1993; Hagedoorn and Hesen, 2009; Joskow 1988; Kashyap, Antia, and Frazier, 2012; Kashyap and Murtha, 2017; Leblebici and Shalley, 1996; Lumineau and Malhotra, 2011; Mooi and Gilliland, 2013; Saussier, 2000; Solis-Rodriquez and Gonzalez-Diaz, 2012). However, Eggleston et al. (2000) and Hagedoorn and Hesen (2009) argue the importance of a subjective measure. This subjective measure, the cognitive load of a contract is ‘the extent to which parties relevant to a contract are able to understand this contract’ (Hagedoorn and Hesen, 2009). Thus, both objective and subjective measures are employed and deemed important to assess contractual governance.

Most research into contractual governance has made use of qualitative data, such as Parkhe’s and Hohfeld’s measure (Barthélemy and Quélin, 2006; Crocker and Reynolds, 1993; Hohfeld, 1913; Lumineau and Henderson, 2012; Lumineau and Malhotra, 2011; Mellewigt, Madhok, and Weibel, 2007; Parkhe, 1993; Reuer and Ariño, 2002 and 2007; and Reuer, Ariño, and Mellewigt, 2006) or an adapted version of these measures (Leblebici and Shalley, 1996; and Lui and Ngo, 2004). Quantitative measures have been used as well, in various forms, by Joskow (1988), Hagedoorn and Hesen (2009), and Poppo and Zenger (2002). Both types of data are, thus, of importance to the literature field.

The vast majority of the researchers use secondary data (Anderson and Dekker, 2005; Barthélemy and Quélin, 2006; Duplat and Lumineau, 2016; Ghosh and John, 2005; Gong et al., 2007; Hagedoorn and Hesen, 2009; Hendrikse and Windsperger, 2011; Jap and Ganesan, 2000; Lui and Ngo, 2004; Lumineau and Henderson, 2012; Lusch and Brown, 1996; Mellewigt, Madhok, and Weibel, 2007; Mooi and Ghosh, 2010; Parkhe, 1993; Poppo and Zenger, 2002; Poppo and Zhou, 2014; Reuer and Ariño, 2002; Reuer and Ariño, 2007; Reuer, Ariño, and Mellewigt, 2006; Vanneste and Puranam, 2010; and Wuyts and Geyskens, 2005). However, their goal was to gather to gather primary data, but were not able to, due to difficulties to gain access to the contracts. Luckily, other researchers have achieved this, such as Achrol and Gundlach (1999), Azzopardi et al. (2016), Crocker and Reynolds (1993), Hagedoorn and Hesen (2009), Hohfeld (1913), Joskow (1988), Kashyap, Antia, and Frazier (2012), Kashyap and Murtha (2017), Leblebici and Shalley (1996), Lumineau and Malhotra (2011), Mooi and Gilliland (2013), Saussier (2000), and Solis-Rodriquez and Gonzalez-Diaz (2012).

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27 Zenger (2002) and Gong et al. (2007) stress the importance of a multi item measure, due to its increased reliability. Others have used a multi item measure in their measurement model as well (Ghosh and John, 2005; Jap and Ganesan, 2000; Kashyap and Murtha, 2017; Luo, 2002, Poppo and Zhou, 2014, and Saussier, 2000)

Most studies examine the entire contract as measure for contractual governance. Only Crocker and Reynolds (1993) and Saussier (2000) focus on a specific aspect, in their case pricing. None of the examined studies focused on e-commerce. A model to measure and compare contractual governance of e-commerce in franchise chains can not be found in the literature, and therefore, should be designed.

5.3 Summary of findings of the systematic literature review (phase II)

This Chapter provides the answer to sub-question 2: What are the existing models to measure

and compare contracts?. This required a systematic literature review. At present, few

researchers have studied the way in which contracts can be compared. The definitions of indicators of contractual governance employed by researchers are often overlapping, which can lead to confusion. Moreover, the study of comparing the content of contractual clauses remains incomplete. The vast majority divided contractual provisions into groups, which were either determined beforehand by analysing the contract, or by application of Parkhe’s groups. A weighted or unweighted average is calculated for the total presence of these provisions. Primary and secondary, qualitative and quantitative data is analysed, and objective as well as subjective, single and multi item measures are used. The overview is given in table 2 and Appendix A.

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Data

Model definition as collection

Author(s) used in the article Model measure method

Hohfeld (1913) Rights and obligations Dividing the contractual provisions into rights and obligations. Contracts Macneil (1978, 1980) Contractual complexity Single item measure. Rated 1-7 agreement with following statement (Contract, 1 = strongly

disagree, 7 = strongly agree) with the following statement: the formal contract is highly customized and required considerable legal work.

Survey

Joskow (1988) Contractual completeness Single item measure. Length (in pages) of the contract. Contracts Crocker and Reynolds

(1993)

Contractual completeness Single item measure. Dividing provisions into eight categories of pricing provisions. Count how many of these provisions are present.

Contracts Parkhe (1993) Contractual safeguards Single item measure. Contractual provisions divided into eight categories of safeguards. Weighted

measure.

Survey Leblebici and Shalley

(1996)

Contract characteristics Single item measure. Dividing contractual provisions into seven groups. Each item in these seven categories of provisions was then coded into categories of rights and obligations (Hohfeld, 1913) from the point of view of the franchisor. These seven groups of contract provisions were

categorized into two classes (formation & termination, and operations & conduct. Count how many of these provisions are present.

Contracts

Lusch and Brown (1996)

Explicit vs. normative contracts

Single item measure. Explicit (precise) or normative (informal guidelines) was captured by 6 indicators each. Count how many of these provisions are present.

Survey Jap and Ganesan

(2000)

Explicit contracts Multi item measure. Explicit contracts is measured by three questions, which measure the degree to which the relationship operates under explicit contracts involving formal, written, and detailed operational procedures. A scale is developed.

Survey

Achrol and Gundlach (1999)

Contractual safeguards Single item measure. Thematic content analysis. Identify and tally supplemental contractual terms by subject. Composite scale comprising of sum of five component norms.

Contracts Eggleston et al. (2000) Contractual complexity The degree to which clauses contain contingencies for different situations. Contracts Saussier (2000) Contractual completeness Multi item measure. Adapted from Crocker and Reynolds’ (1993) measure. Provisions are divided

into categories, rated 0-6 when indicator is present.

Contracts Luo (2002) Term specificity and

contractual completeness

Multi item measure. Term specificity is the degree, rated on a 1-5 scale, to which a contract contains 1-4 specified terms. Being: (1) how to set up the joint venture; (2) how to operate and manage the joint venture; (3) how to cooperate and resolve conflict between partners; and (4) how to terminate the joint venture. Contractual completeness is the amount of terms present in the contract, specified in advance, and benchmarked with a standard from MOFTEC.

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Data

Poppo and Zenger (2002)

Contractual complexity Multi item measure. Macneil’s (1978) measure. Plus, length of the contract (in pages). Three stages least squares analysis.

Survey Reuer and Ariño

(2002)

Contractual complexity Parkhe’s (1993) measure. Survey

Lui and Ngo (2004) Contractual safeguards Single item measure. Adapted Parkhe’s (1993) measure. Six specific contractual items for the construction industry. Weighted measure.

Survey Anderson and Dekker

(2005)

Contract extensiveness Single item measure. Dividing provisions into 24 ﬁnancial, legal, and operational issues. Count how many of these provisions are present.

Survey Ghosh and John (2005) Contractual

incompleteness

Multi-item measure. Three-step procedure to assess the completeness of each contract. Steps: (1) Generate comprehensive list of clauses covered across the contracts, (2) Evaluation by independent coders for presence or absence of each clause across each contract, (3) Counting the number of clauses specified in each contract and undertake a natural logarithmic transformation to reduce skewness and spread of the distribution.

Survey

Wuyts and Geyskens (2005)

Detailed contract drafting Lush and Brown’s (1996) measure. Survey Barthélemy and Quélin

(2006)

Reuer, Ariño, and Mellewigt (2006)

Mellewigt, Madhok, and Weibel (2007)

Gong et al. (2007) Contractual completeness Multi-item measure. First, categorize contract terms into four dimensions. Next, rate the degree of specification of each of the dimensions on a five-point scale.

Survey Reuer and Ariño

(2007)

Contractual complexity Parkhe’s measure. Survey

Hagedoorn and Hesen (2009)

Contractual complexity Single item measure. Separation of the objective and (direct and indirect) subjective measure of contractual complexity. The objective measure can be constructed in terms of either the number of pages of a contract, the number of kilobytes of the ASCII ﬁle of a contract, or the number of words in a contract. The subjective measure measures degree of complexity, rated 1-7 and time needed.

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Data

Mooi and Ghosh (2010)

Contract specificity Lush and Brown’s (1996) measure. And Macneil’s (1980) measure. Survey Vanneste and Puranam

(2010)

Legal detail Single item measure. 10 items describing legal clauses of the transaction. Indicate for each topic whether it was not arranged, only orally arranged, or arranged in writing. Count how many of these items are present.

Survey

Hendrikse and Windsperger (2011)

Contractual completeness and contractual complexity

Single item measure. Specific decision rights (sDR) (as outcome planning) and residual decision rights (rDR) (as procedural planning) are both related to completeness and complexity.

Completeness is sDR/rDR, complexity can be defined by the sum of contract provisions consisting of sDR + rDR.

Survey

Lumineau and Malhotra (2011)

Contractual governance structure (heavy vs. light), contractual complexity

Parkhe’s (1993) measure. Yet, unweighted measure Contracts

Lumineau and Henderson (2012)

Contractual control governance, contractual coordination governance

Parkhe’s (1993) measure. Survey

Kashyap, Antia, and Frazier (2012)

Contractual completeness, contractual one-sidedness

Ghosh and John’s (2005) measure. Contracts

Solis-Rodriquez and Gonzalez-Diaz (2012)

Contractual completeness Single item measure. Contractual completeness was measured by three steps; (1) obtain all

contingencies mentioned in the contracts, (2) identify the number of contingencies in each contract, (3) the higher the number of contingencies, the higher the level of completeness.

Contracts

Mooi and Gilliland (2013)

Contractual completeness Single item measure. 24 contractual terms, determined in advance by IT managers. Count how many of these terms are present.

Contracts Poppo and Zhou (2014) Contractual complexity Multi item measure. Three indicators, rated 1-7 by which they are present in the contract. Survey Azzopardi et al. (2016) Contracta automata Mathematical formalization of provisions of general statutes, and deontic reasoning. Contracts Duplat and Lumineau

(2016)

Contract complexity Single item measure. 8 contractual provisions are divided according to licensing literature. Count how many of these provisions are present.

Survey Kashyap and Murtha

(2017)

Contractual completeness Ghosh and John’s (2005) measure. Contracts

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6. PHASE III: MODEL DEVELOPMENT

In this Chapter, the model to measure and compare different contractual governance forms of e-commerce in a franchise context is designed. This is mentioned in the methodology as phase III. It commences with an explanation of all the steps of the FBS framework by Gero and Kannengiesser (2004). Next, the first two steps of the framework will be performed. Step three to eight will be discussed in next Chapter, as part of the refinement phase IV. At the end of the Chapter, the results of phase III are given in a summary of findings.

6.1 FBS framework

The Function-Behaviour-Structure framework stands for the different elements of its name. The Function is the goal aimed at for the model, i.e. what it is made for. The Behaviour is what is does, or what the different attributes derived or expected from the structure of the model do. The Structure describes the elements of the model and their relationship, i.e. what it is. The framework consists of eight steps (see figure 6).

Step 1: Formulation. This step identifies the requirements for the model, transforms them into a function (R → F), and its expected behaviour state (F → Be).

Step 2: Synthesis; (Be → S). This step will create the structure of the model, based on the expected behaviour.

Step 3: Analysis; (S → Bs). This step analyses the behaviour from the created structure.

Step 4: Evaluation; (Be ↔ Bs). This step compares the behaviour from the created structure with the expected behaviour.

Step 5: Documentation; (S → D). This step derives the characteristics of the model based on the structure.

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Step 6: Reformulation type 1; (S → S’). This step adapts the structure of the model based on the re-interpretation of the created structure.

Step 7: Reformulation type 2; (S → Be’). This step adapts the expected behaviour derived from the re-interpretation of the structure.

Step 8: Reformulation type 3; (S → F’ via Be). This step adapts the function of the requirements of the model, based on the re-interpretation of modified structure and expected behaviour (step 6 and 7).

6.2 Model development steps

In this section the first two steps of the FBS framework are performed. It commences with a requirements analysis, and continue through the formulation and synthesis step, towards the development of the structure of the model.

6.2.1 Step 1 FBS: Formulation

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Figure 8: Functional requirements

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6.2.1.1 Functional requirements into functions

First, the functional requirements and their functions are discussed (see figure 8). These requirements define what the model should do, i.e. which specific behaviour it should perform.

Compare and measure

1. Categorize: The most significant feature of the model is the capability to compare

contracts. Therefore, a categorization of the content will have to be provided, in order to differentiate contracts from one another. The function for this requirement will have to provide these categories. Categories should be practical, logical, and not too difficult. Therefore, a minimum of 5 categories and a maximum of 12 is preferred, with clear descriptions.

2. Weigh: Once a model of categorization is present, a value to the different categories

will have to be given. This will enable to weigh the separate contracts and compare them. The function for this requirement is to appoint a reasoned value to the different categories. The Likert-scale offers possibilities as well. A multi item measure is preferred over a single item measure, as the latter has a lower reliability than the first (Poppo and Zenger, 2002; Gong et al., 2007).

Focus on e-commerce

3. Perform on contract level: Several studies assessed contractual governance based on

the number of pages, clauses, or kilobytes of the document. These characteristics could give rise to differences in the effects. For example, many pages can be viewed by the recipient as more complicated than a short contract, and thus, have a different effect on partners. The function for this requirement has to focus on the contract without reading the content. It could range from counting the pages, clauses, words, or other characteristics of the contract.

4. Perform on clause level: The focus of this research is on e-commerce. It is essential to

extract the clauses concerning e-commerce from the data and evaluate them separately. The emphasis of its function lies on the content of the contract, in specific, what is written down in its clauses. The characteristics discussed in the literature review will provide the necessary indicators. These are the arrangement of an exclusive area, website, web shop, social media, the legitimacy thereof, and the difference between active and passive sale.

Assess from multiple perspectives

5. Measure objectively: An objective measure is required to rule out researcher- and

A MODEL TO MEASURE AND COMPARE CONTRACTUAL GOVERNANCE OF E-COMMERCE IN FRANCHISE CHAINS

A MODEL TO MEASURE AND COMPARE

CONTRACTUAL GOVERNANCE OF E-COMMERCE

IN FRANCHISE CHAINS

Master Thesis

MSc BA Small Business & Entrepreneurship

University of Groningen, Faculty of Economics & Business

Duisenberg Building, Nettelbosje 2

9747 AE Groningen, The Netherlands

1

supervisor: dr. E.P.M. Croonen

A MODEL TO MEASURE AND COMPARE

CONTRACTUAL GOVERNANCE OF E-COMMERCE

IN FRANCHISE CHAINS

PREFACE

TABLE OF CONTENTS

1. INTRODUCTION

2. PROBLEM DEFINITION

2.1 Problem background and analysis

2.2 Research gap

2.3 Research goal and questions

3. METHODOLOGY

3.1 Theory development as research approach

3.2 Research phases

3.3 Research quality criteria

4. PHASE I: REVIEW OF LEGAL CONTEXT

4.1 Legal context

4.2 Summary of review of legal context (phase I)

5. PHASE II: SYSTEMATIC LITERATURE REVIEW

5.1 Overlapping definitions of contractual governance forms

5.2 Data synthesis of contractual governance and its measurement models

5.3 Summary of findings of the systematic literature review (phase II)

6. PHASE III: MODEL DEVELOPMENT

6.1 FBS framework

6.2 Model development steps

_{supervisor: dr. E.P.M. Croonen}