Control, trust and behavior in franchise
relationships: a study on Dutch franchise
organizations.
Roelof Geert Schuurman S2908646 r.g.schuurman.1@student.rug.nl K. Bijlsma-Frankema E.P.M. Croonen 22-6-2020 Word count: 12759
MSc BA Small Business and Entrepreneurship Faculty of Economics and Business
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Abstract
The aim of this thesis is to contribute to the understanding of the trust-control nexus within franchise formulas. The objective is to bring the discussion about the trust-control nexus a step further. This is done by identifying how the formal control measures of the franchisor affects the trust-control perceptions of the franchisees. Furthermore, the complementary effect of formal control and trust on brand supportive behavior will be identified. Finally, this thesis looks from the perspective of the controlees, the franchisees, which has not been subject to extensive trust-control research yet. In this thesis, it has been found that formal control measures are positively evaluated by franchisees, when they resulted in useful feedback and positive support from the franchisor which will benefits the franchisee. This will lead to better brand supportive behavior of the franchisees.
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Introduction
Franchising is a popular distribution channel among entrepreneurs (Watson and Johnson, 2010), since it offers mutual benefits to the franchisors and the franchisees (Monroy & Alzola, 2005; Altinay et al., 2014). The franchisee chooses to purchase the operational and strategic support from the franchisor in order to pursue opportunities for wealth creation (Croonen and Broekhuizen, 2019; Sorenson and Sørensen, 2001). This has been found to have positive implications for the long term performance of the firm (Evanschitzky, Caemmerer and Backhaus, 2016; Mitsushashi, Shane and Sine, 2008). The franchisee has to meet the standards that the franchisor has for the whole franchise chain concerning business policies and procedures (Sorenson and Sørensen, 2001). It is important that these policies and procedure are followed by the all the franchisees, as these are intended for the whole franchise chain (Sorenson and Sørensen, 2001; Gómes, González and Suárez, 2011).
In order to make sure the franchisees are following these policies and procedures, two broad categories of control for the franchisor exist; formal and informal control (Choo, 2005). In the case of formal control, the franchise contract becomes the focus of attention (Leblebici and Shalley, 1996). These set standards concerning the polies and procedures are explicitly stated in the franchise contract, and both parties are aware of these (Sorenson and Sørensen, 2001; Ouchi, 1979). Informal controls, in contrast, rely on the development of shared values and common beliefs in the franchisor-franchisee relationship (Choo, 2005; Ouchi, 1979)
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reputation and status (Kidwell et al., 2007). Due to the high level of interdependence and for a well-functioning relationship, there is a vital necessity to trust each other (Bagdoniene and Hopeniene, 2013). The consciousness of interdependence is an important element in a organizational relationship, as “it creates feelings of social attraction, empathy and trust” (Ting, 2014. p.227). Trust is important from the franchisee point of view, as it enhances the confidence in the competence and integrity of the franchisor (Davies et al., 2011). This is beneficial for the franchise relationship and the parties involved, as it leads to more cooperative behavior and higher satisfaction within the relationship (Altinay et al., 2014).
The control-trust relationship is a vibrant stream of the research on control studies according to Sitkin, Long and Cardinal (2020), as was mentioned in their review on the control studies. Trust and control are important concepts in the franchise literature, given the positive effects they both may have on effectiveness of governance, including franchisee compliance (Yakimova, Owens and Sydow, 2018), cooperation (Fang et al., 2008; Mesquita, 2007), coordination of behaviors, and the interactions (Costa and Bijlsma-Frankema, 2007. Considering that, in a franchise relationship, there are different economic motives and asymmetrical distribution of power between the franchisor and the franchisee (Croonen and Broekhuizen, 2019; Davies et. al.,2011). In such circumstances, a degree of franchisee’s trust in the franchisor is important as it leads to more cooperative behavior (Altinay et al., 2014).
Research Gap
Bijlsma-4
Frankema, 2007; Long and Sitkin, 2006). This is due to mixed findings of studies that examined this relationship (Yamikova, Owens and Sydow, 2019; Costa and Bijlsma-Frankema, 2007; Long and Sitkin, 2006; Das and Teng, 1998). More current literature (e. g. Malhotra and Murnighan., 2002; Tenbrunsel and Messick., 1999) however shows that the relationship between trust and formal control is positive, contradicting earlier studies in which negative relations were found. More research is needed to get a better understanding of the relationship between trust and control in franchise relationships (Altinay et al., 2013; Davies et al., 2011).
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study will examine the effects of control and trust from the perspective of the franchisees.
One of the few franchise studies that has focused on the perspective of the franchisees is the recent study of Yakimova, Owens and Sydow (2018) who found a positive relationship between trust and control and positive effect of both on brand supportive behavior. This study looked at the effect of formal controls on the promotion of trust and cooperation among franchisees. Cooperation was measured through brand supportive behavior. Brand supportive behavior is important in the franchise relationship, since it concerns the willingness of the partner to pursue interest of both parties in a franchise relationship (Das and Teng, 1998). Sitkin, Long and Cardinal (2020) argue that scholars largely neglected the consequences on motivational, emotional and cognitive implications of the perceptions of the controlees. Yamikova, Owens and Sydow (2018) support this argument by stating that the current research has a deficient understanding of the effect of control on brand supportive behavior. This behavior is important for a franchise relationship, as the franchisee has to meet the set standards concerning the policies and the procedures that the franchisor has set for the whole franchise chain (Sorenson and Sørensen, 2001). Following the argumentation above, the research question will be:
How do franchisees perceive and evaluate formal control measures of the franchisor? Positively or negatively and why? Which actions of the franchisor are related to trust (distrust) in the eyes of the franchisees and which
combinations of control and trust promote brand supportive behavior?
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focused on managerial choices. Thirdly, this study will contribute to the emerging literature on the effect of control on the brand supportive behavior of the franchisees. The remainder of this paper will be structured as follows. First, the theory will be discussed, followed by the method and data section. Finally the discussion and conclusion are discussed.
Theory
Trust and Brand Supportive Behavior
Trust is an important dimension in franchise relationships. Having trust in each other reduces the possibility for conflicts and non-brand supportive behavior (Croonen, 2008). Moreover, it encourages the exchange of information between franchise parties, positively influencing both their satisfaction levels. Trust has been found to enhance the reliability, fairness and the intent reflected in the behavior of the other actor (Sindhav et al., 2006; Cohen-Charash & Spector, 2001). These factors may promote the level of performance of the partnership (Krishnan et al., 2006) and can result in loyalty-building relationships (Beneke et al., 2011). In this paper, the definition of trust given by Krishnan et al. (2006) is used, who defines trust as the “expectation held by one firm that another will not exploit its vulnerabilities when faced with the opportunity to do so” (p.895).
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Behavior of the other party can be constructive (voice and loyalty) and destructive (exit, neglect and silence). These reactions are part of the EVLN typology, introduced by Hirschman (1970). This typology is used by scholars in an attempt to conceptualize and investigate the “influence of actors’ perceptions of trust and fairness on their responses toward their organization or supervisors” (Croonen, 2008. p.7). In his typology, Hirschman (1970) distinguishes three types of responses to the so-called ‘problematic events’, to which other authors added a fourth option (Croonen, 2008). These are Exit, Voice, Loyalty and Neglect. Croonen (2008) defines the parts of the typology in her paper. Starting with the positive behavior, “voice means actively discussing and expressing the problems in the relationship with the underlying motivation of trying to improve the conditions” (p.8).” Loyalty concerns the partner that gives the other partner time (e.g. by remaining silent and confident) to improve the problematic conditions”(p.8). “Exit is part of the negative behavior, meaning the ending of the relationship”(p.8). “Neglect means that the relationship will be passively allowed to deteriorate by the parties, who just let things fall apart” (p.8). The type of response ‘silence’ of Morrison and Milliken (2000) could be viewed as an extension to the EVLN typology. This variable means that parties withhold input, which could be of great value for the relationship and the other parties.
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If mutual trust is developed in the franchise relationship, voice and loyalty are believed to be positively influenced. Voice could be a result from e.g. the existence of a franchise advisory council, or FAC, meaning participation in the strategic decision-making processes. Via the FAC, the franchisees can make sure that their interests are taking into account by the franchisor via representatives. When there is trust in the relationship from the point of view of the franchisor, the franchisor will make sure that the interests of the franchisees are taken into account and that there is a structure or system in which they have the opportunity to participate in the decision making, positively influencing the voice (Croonen, 2008). Trust can contribute to loyalty-building in the franchise relationships (Beneke et al., 2011; Guenzi, Johnson and Castaldo., 2009). This means that the franchisee will remain silent in case of problematic conditions and that these conditions will be improved by giving it some time, due to the fact that the franchisee has trust in the franchisor. Croonen (2008) indeed found that high levels of trust lead to constructive franchise responses, of which loyalty is one element next to voice.
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low levels of trust leads to ambiguous loyalty, which could result in destructive responses, which included neglect and exit.
Next to the EVLN framework introduced by Hirschman (1970), more research on the relationship between trust and brand supportive behavior has taken place. Beneke et al. (2011) and Guenzi, Johnson and Gastaldo (2009) found that trust between two parties can contribute to loyalty-building relationships. The loyalty of a partner shows an intention of loyalty, meaning an intention to perform a set of behaviors, which contains a signal of wanting to maintain the relationship with the other party (Guenzi, Johnson and Gastaldo, 2009; Zeithaml et al., 1996).
Trust operates to mitigate opportunistic behavior (Brookes et al., 2015), which could harm the franchise relationship (Lee et al., 2010). Examples of this behavior are not following the rules and procedures set by the franchisor and freeriding, which could also have negative effects on the other franchisees (López-Bayón and López-Fernández, 2016; Croonen and Brand, 2015; Kidwell et al., 2007). This is due to low levels of trust, which increase the probability that there will be misbehavior in the relationship (Croonen and Brand, 2015). Freeriding occurs when franchisees reap the benefits of the franchise network without taking a fair share in the costs (Carney and Gedajlovic, 1991), neglect responsibilities and evade the contractual obligations (Brown et al., 2014). According to Brookes et al. (2015) franchisees are more likely to free ride when the monitoring of the franchisor is difficult and when information asymmetries are high, meaning that the level of trust is low.
Trust and Formal control
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reason for this is that there are mixed findings regarding the relationship between the variables (Yamikova, Owens and Sydow, 2019).
In most alliances, formal controls constitutes of a range of procedures, which include contracts (Yamikova, Owens and Sydow., 2019; Das and Teng, 2001). There are two main modes of formal control according to Ouchi and Maguire (1975). The controller can control by either measuring the behavior of the controlee or the outcomes of the behavior. The first checks the process and the latter the outcomes of the process. In terms of franchise this means checking the actual behavior of the franchisees or their financial outcomes. Das and Teng (2001) argue that formal control could undermine trust. The franchisees do not have autonomy in making decisions what works best for them, due to the employment of strict objectives and rules by the franchisor. Furthermore, the feeling can be created that the that the franchisor does not fully trust the competence of the franchisee. The franchisees can feel that their goodwill and competence is thrown in doubt, and as a result, an atmosphere of mistrust is created by the franchisor (Das and Teng, 2001). Furthermore, when the franchisor closely monitors the franchisees, a dependence franchise relation is created. Few firms like to be directed by the franchisor, so close monitoring tends to create tension between the parties, that makes the partners more skeptical of each other’s approaches (Das and Teng, 2001).
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(Enzle and Anderson, 1993; Blau and Scott, 1962). So, as a result of formal control mechanisms being employed, the negative feelings towards the franchisor are enhanced (Ghoshal and Moran, 1996), and the intrinsic motivation and commitment of the franchisees is decreased (Barker, 1993).
Arrow (1974) stated that for any type of economic transaction a minimum level of trust is needed. These transactions include business relationships. Years later, Das and Teng (1998) pointed out that, in order to have an effective level of control over a party in an alliance, trust is a prerequisite. Trust is needed in order to bring harmony in the relationship and to reduce the resistance against the rules and procedures that are imposed. Trust became recognized as a central mechanism which is important for the coordination of the expectations, the behavior of the parties and interactions between the parties within organizational relations (Costa and Bijlsma-Frankema, 2007).
High levels of trust will reduce the need for formal control, meaning that the formal rules, procedures and policies which are implemented in order to monitor and possible reward the positive and desirable performance, are becoming less important (Costa and Bijlsma-Frankema, 2007). Herz et al. (2016) explain this as the effect of lower relational risk, which diminishes the need for formal control mechanisms due to the high level of trust. However, according to the classical transaction cost economics, formal control should still be applied in the business relationship. According to the transaction costs economics, trust is not a reliable safeguard, and formal rules should still be in place in order to prevent the relationship from opportunism (Klein Woolthuis, Hillebrand and Nooteboom, 2002).
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with the purpose to influence the partners behavior (Adler And Borys, 1996). On the other hand, formal controls are designed to offer the franchisees regular support, feedback and flexibility (Nyadzayo et al., 2015; King et al., 2013). With the use of formal controls, information systems are deployed by the franchisor which collect and utilize information from the franchisees to disseminate information about the performance (Kidwell and Nygaard, 2011). The monitoring procedures are specified in the franchise contracts, and require the partners to record the outcomes of their efforts. Franchisors are able to establish a record of franchisees accomplishments, which informs franchisee experiences and develops trust in the mind of the franchisees towards certain types of support and recommended activities (Yamikova, Owens and Sydow, 2019; Mellewigt et al., 2007).
Atuahene-Gima and Li (2006) argue that “the purpose of control mechanisms is to provide effective assessment, timely communication, and rewards that can enhance employee performance, supervisee trust may be nurtured and strengthened” (p.345). Furthermore, the use of control mechanisms by the controller have positive implications for the assessment of the performance risks of the controlee, which could result in care and support by the controller (Atuahene-Gima and Li, 2002). Ouchi (1979) and Sitkin (1995) support this by arguing that formal controls have a positive effect on trust, since they provide an effective assessment of the performance, timely communication and possible rewards for the franchisee.
Formal Control and Brand Supportive Behavior
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The positive effects of formal controls on brand supportive behavior can be explained by using theories from social psychology. First, from the expectancy theory it flows that a franchisee exerts efforts when they have a positive perceived expectancy about the link between certain activities and the outcomes that are desired (Fudge and Schlacter, 1999). Expectancy means the strength of a person’s belief that when he or she displays a certain behavior, it will lead to the outcomes that are desired (Vroom, 1964). When the franchisor discusses the goals and activities that are desired, and that in the end have a positive contribution to the success of the franchisees, it will create a positive expectancy in the mind of the franchisees. When the franchisee has this positive expectancy about the action-outcome link, preferred lines of behavior are adopted (Fudge and Schlacter, 1999). This behavior is the brand supportive behavior (Yamikova, Owens and Sydow, 2019)
Furthermore, social comparison theory suggest that the collecting and dissemination of monitoring data will develop a positive expectancy in the mind of the franchisee about the intention of the franchisor to shape compliant behavior among the franchisees (Kidwell and Nygaard, 2011). Following the argumentation of Kidwell and Nygaard (2011) monitoring of cross-unit performance prompts the franchisees to compare the data from their shops with more successful shops, which in the end motivates the franchisees to perform better and not to show deviant behavior (Yamikova, Owens and Sydow, 2019). Christy and Fox (2014) add that individuals are driven to self-evaluate and to compare their abilities and accomplishments to similar others to reduce uncertainty.
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and moral hazard are not fully eliminated. This is due to the monitoring problems, goal divergence and information asymmetry (Garg et al., 2005; Doherty and Quinn, 1999). Free riding, neglecting responsibilities and evading contractual obligations are results of this (Brown et al., 2014). Different formal control mechanisms are preferred to control all future franchisee behavior (Brookes et al., 2015). Empirical evidence concerning the effectiveness of different formal control mechanisms is mixed (Brookes et al., 2015). Whereas the franchisor aims for control over the franchisees and standardization in order to maintain the reputation of the brand, franchisees strive for the autonomy when operating their own ventures. When franchisor control is low, the opportunistic behavior of the franchisees will rise, with the goal to maximize their personal gains at the expense of the whole franchise concept (Kidwell et al., 2007; Shane, 1998). Yamikova, Owens and Sydow (2018) found that when franchisees have positive evaluations about the benevolence and competence of the franchisor, formal controls promotes their brand supportive behavior.
Colletti, Sedatole and Towry (2005) explain in their paper that the control systems used in a collaboration will positively affect the level of cooperation, as the control systems are aimed to reduce the relational risk. This relational risk refers to the possibility of opportunistic behavior of the partner. In a collaboration, like a franchise relationship, there risk exists that the objectives, such as creating uniformity among the franchisees, of the collaboration will not be achieved. By implementing formal controls, the probability that there is full cooperation, and thus brand supportive behavior, of both partners increases (Colletti, Sedatole and Towry, 2005).
Methods
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from 2 different franchise formulas, a drug and a perfume formula, in this paper mentioned as formula a and b. Three were conducted in 2020 with the perfume franchisees.
Due to Corona, no more interviews could be conducted in the perfume formula. Therefore, in addition, five interviews with drug franchisees, conducted in 2003, were subjected to secondary analysis to answer the research questions.
The interviews followed the topic-guided methodology from Kvale (1996). The aim of this method is to get long and broad answers by posing short and non-directive questions. Each of the topics (general; relationships with other franchisees; relationship with franchisor; changes in the past 10 years) was approached in a nondirective way. This, by making sure to not impose lead questions to the interviewees and to uncover their perspectives. Starting with each topic, a general question was asked (e.g. can you tell something about yourself and your activities). Following this question, follow up questions were asked, using the interviewees wording, for (i) an explanation of the answer (e.g. why did this happen), (ii) an example (e.g. can you give me an example of that?), (iii) the sequence of events (e.g. when did this happen in the timeline?). When the point was reached that no new information on the topic was derived, more directive questions were asked. This to check the information that was retrieved from the previous questions. The interview guide consisted of 20 non-directive questions to start a subtheme. The interviews lasted for approximately an hour. The interviews were taped, transcribed verbatim, and entered into a qualitative data matrix. In this matrix, the questions and topics are listed in the columns and the respondents are listed in the rows. First, the data were described, following the topics in the interview guide and data matrix.
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Next the data were used to answer a set of analytical questions, derived from the research question. The analytical questions include why questions (Whetten, 1989). Why questions help the theory development by challenging and extended existing knowledge. By posing these questions, the underlying dynamics and relationships become understandable. In this paper, there are 5 analytical questions, which are listed below:
● Why is formal control by the headquarter sometimes perceived as beneficial and sometimes as detrimental to the self and/or the firm? ● Which actions of the franchisor are related to trust, or distrust, in the eyes
of the franchisees?
● Which combinations of trust and formal control promote brand supportive behavior and why?
Results
Part A: Description of the Data Part A-1: general
Information about and expectations of formula A and B
For this research, interviews were conducted with 8 franchisees. These are part of two different franchise formulas in the Netherlands, active in the drug and perfume market. Of the 8 respondents, only three are less than ten years part of the franchise network. 5 are more than fifteen years part of the network. Six franchisees are having a function as representative of franchisees. Half of the respondents have 1 shop, three have three shops or more, and one respondent has 19 shops. Six respondents have functions as a representative of franchisees. Two respondents are in the advisory board, one is part of the purchasing committee, one is part of the advisory committee, one is part of the panel board and one is part of the council of representatives.
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that there is room for own initiative or as one respondent stated: “that you can also do things yourself”. Two franchisees stated explicitly that they wanted more uniformity across their shop, by working closely together with the colleagues. This means that with a shared logo, uniform shop interior, and franchise wide marketing the brand becomes better recognized. Having uniform marketing campaigns is a major expectation, as well as prices, for better brand recognition of their shops and those of colleagues. With this uniformity, the franchisees expected that their shops become more attractive for customers, resulting in higher revenues. Most of the expectations did come true, however one expectation not. The franchisee (b) was promised by the franchisor that “the formula would grow to an organization consisting of eighty shops, in order to have a higher market share”. This market share was important for the franchisee, as he believed that the existing organization had too little influence on the market.
Financial success and failure factors
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Next to the success, there are the failure factors. The website of the franchisor (a) is an often mentioned failure factor. This does not really hold for the drug franchise formula, as the interviews took place in 2003, when the website of the franchise formula was not as important for the success of the formula as in 2020. “Of course we want customers in our shop, but what is an organization nowadays without a properly functioning website and web shop?” (b). Due to the lack of it, there is a small market share in the online market environment. The online market environment is becoming more and more important, as customers compare the firms online, and shop in the web shops. The franchisees see that as a threat for their financial success, as nowadays customers sometimes look at the product range online before making a decision to visit a physical shop. Furthermore, the costs of being a franchisee are sometimes too high, as was mentioned by three respondents. Specifically the franchise fee, the costs resulting from bad communication with the franchisor and the purchasing prices are three points that were explicitly stated in the interviews. The bad communication was mentioned, as the communication plan was not aligned. This led to several costs for the franchisees, and frustration. During renovation of a drug store franchisee, the franchisor suddenly interrupted, and the renovation was halfway cancelled. This was due to bad communication from the franchisor, which was not clear for the franchisee and not in time. Furthermore, a perfume franchisor mentioned that the headquarter had temporary workers or students doing an internship and the communication department, which made continuous communication hard.
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Part A-II: Relations with other franchisees in formula A and B
Influence on success and failure of firm
Four respondents mention that the other franchisees have a positive effect on their shop. They pointed at the feedback that they received from them. The franchisees are willing to learn from each other, and open to receive feedback. This helps them in running their shop more effectively. Furthermore, the way the franchisees contributed to the uniformity and the brand image of the formula (a) was perceived as a positive influence on the shop of the interviewee.
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mentioned by a franchisee who has multiple shops (b). According to him, this resulted in agitation and rumors about the franchisor, again not beneficial for the franchisee-franchisor relationships.
Trust of other franchisees
Three of the respondents directly stated to trust the other franchisees in their formula, referring to a feeling that you show unity with your colleagues, the level of expertise of other franchisees, and positive contact each has with others. The level of expertise is important for the brand image of the franchise chain, as “this shows that each franchisee is taking his or her profession seriously”. Positive contact is important in order to share information, ideas and to cooperate with each other. One respondent had a medium to low level of trust, coming from the fact that colleague franchisees did spread ‘false positive’ information about the franchisor, on which the interviewee did not agree.
One respondent directly stated that he distrusts other franchisees (b). “Some do not give full details or do not act according to the franchise contract” is what the respondent mentioned. What happened is that a sort of free-riding is started among the franchisees, and that the uniformity is challenged. “I am part of a franchise chain for a reason, that is to have a uniform market approach. When colleague franchisees start their own initiatives and deviate from the rules, this approach cannot stand”. The remaining three respondents did not explicitly mention that they trust or distrust other franchisees.
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Part A-III: Relation with headquarter
Five of the eight respondents clearly stated in the interview that they had a good relationship with the franchisor. One stated that the relationship was moderate, and two did not clearly tell about how their relationship was. The relationships with the franchisors are important according to the franchisees, for a number of reasons. First, there is a lot of knowledge and information available within the franchise organization. Both the colleague franchisees and the franchisor can provide the individual shop with advice and feedback in order to improve their shop. One respondent (a) clearly stated that “making use of the knowledge” was important for him. Secondly, “there is a lot of support from the franchisor”. When a franchisor has issues with the product range, shop or even financially, help can be requested from the franchisor.
However, even when more than half of the respondents clearly states that they have a good relationship with the franchisor, there are also some issues involved. Four respondents indicate that they believe the costs are too high, of which three come from the perfume formula. This is due to the bad return policy, unwieldy organization, too much pressure to do what they desire you to do, and that the franchisor “sometimes can be quite rigid in regard to liquidity”. Concerning the unwieldy organization, there are two points of view. One respondent stated that “there are too many temporary workers at the headquarter, costing me too much time and money”, while the other respondent indicated that there is too much bureaucracy. Furthermore, the communication with the headquarter leaves much to be desired.
So, most of the franchisees are satisfied with their relationship with the franchisor. This good relationship benefits their shop by exchanging information, getting advice and receiving support from the headquarter. However, the costs of being a franchisee are too high in the eyes of four respondents.
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The franchise contract was positively evaluated by five respondents. One respondent critically indicated that there was “more and more pressure to follow their rules”. The remaining two respondents did not clearly state how they experienced their contract with the franchisor. The five respondents that evaluated the franchise contract positively, gave a side note that the contract is comparable to a standard franchise contract. “Of course, there is a degree of hardness, but that is common with a franchise contract”.
The positive side of the contract was that the “rules are clear, because you need to make agreements in a franchise relationship, however this contributes to our own well-being. Everyone understands that we need this contract in order to function well as an organization”. There existed also room to put your own spin on it, meaning that local initiatives and promotions are allowed. This is what most of the franchisees desired in their expectations, meaning that it is important for them that it is contractually allowed.
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Four of the respondents felt however that the monitoring done by the franchisor is beneficial for them and their shop. With the monitoring comes evaluation, feedback and advice. “With the monitoring, we get support from the franchisor. That partly makes up for the higher fee that we have to pay”. Moreover, “due to the monitoring, results and other measurements can be compared to our colleagues”. This was important for the franchisees as they have an idea how they were doing compared to their colleagues in the same franchise formula, and on which points they could learn from their colleagues and improve. This possibility to compare showed the franchisees what their strong and weak points were, and they could improve based on this.
Trust of headquarter
From the interviews it turned out that six franchisees had trust in the head office. One has mentioned that the level of trust had decreased over time, and one had a medium level of trust. Several factors played a part in case the franchisees stated that they had trust in the head office. “Receiving more information than the average franchisee in the franchise network” is the first factor. By getting this information, the feeling was created that the franchisor trusted the franchisee (b) to a greater extent, which was the main motivation for the trust of the franchisee in the franchisor. Next, it was mentioned that “distrust is not contributory for a well-functioning relationship based on trust”, meaning that the franchisor also had obligations to fulfill. This led to obligations from both sides, thereby eliminating distrust . Furthermore, when the “franchisor is developing a lot for the future in order to improve the formula”, it created trust in the eyes of the franchisees. They got the feeling that the franchisors took the formulas serious and wanted to make it future-proof.
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first is that there was more and more pressure from the head office towards the franchisee. “Everything that the franchisor wants, is obligatory for the franchisee to do”. This is how he saw it from his position. Furthermore, due to things that happened in the past, the franchisee had the feeling that he had to check everything that the franchisor does, to make sure that he would not be disadvantaged. The second franchisee had medium trust in the headquarter. He is satisfied with the relationship, but remains hesitant.
Headquarter trust
This part shows the perceptions of the trust from the franchisor towards the franchisee from the perspective of the franchisee. Moreover, it is discussed when the franchisor and when the franchisee points the other on improvements, which is related to the trust. When the franchisee has the feeling that he or she is trusted by the headquarter, this flows mostly from 2 main points. The first is a specific point of one franchisor, that she receives more information than the average franchisee from the franchisor, as was discussed in the previous part. The next point is a more general point. When needed, the franchisor provides the franchisees with support. This support entails visits of managers, feedback and tips. This help can be easily requested by the franchisor, as the headquarter is always willing to help the franchisee. However, these is one franchisee that has the feeling that the level of trust the franchisor has in him is low. “The size of my company is frightening for the franchisor. They now set limits for me”. By having multiple shops, the franchisee has the feeling that he gets more powerful than his colleagues, and believes that the franchisor does not like that position.
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sufficient to do the job. The second franchisee mentioned the franchise representatives. These representatives have the job of controlling the franchisor. The third franchisee suggested that the franchisor should talk with entrepreneurs. By doing this, new insights can be obtained which could be helpful for the organization. The last franchisee provided the franchisor with practical improvements regarding the return policy.
Dealing with unpleasant aspects in relation with headquarter
Of the eight respondents, two franchisees, both part of the drug franchise, considered exit. Franchisee number one had many shops, and was considering to start his own formula, because he believed he could do it better. The other franchisee considered exit due to a disagreement with the franchisor about the shop interior. He wanted to add products to his shop on which the franchisor did not agree on. This is related to the pressure of the franchisor to follow the will of the franchisor.
Finally, there were two points that in the eyes of the franchisees needed to be changed in the future. The first point mentioned was that the franchisor and the franchisee should had start to learn more about each other. This means that the people from the head office and the shop owners should have met more often, in order to get a better sense with who they are dealing with. By this, the cooperation was believed to be improved and that more trust would develop. The second point is that the franchisor should had looked at things from the perspective of the franchisee. “They have to work for the franchisee, in order to solve issues that are bad for the shop owner”.
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However, the high costs, pressure and the bad communication were perceived by the franchisees as not contributing to their performance, and led to lower levels of trust among the franchisees.
Part A-IV: Changes in the past decade.
This part summarizes the most important changes in the past decade in the eyes of the franchisees. There are several important changes in the eyes of the franchisees. The first was the implementation of the FSO for the drug franchise. Moreover, the new managing board was mentioned as an important change (a). The franchisor has made a big step towards professionalism by this. The
consultation structure has become smaller, which resulted in more involvement of the franchisees. By doing this, the franchisees had the feeling that they could bring in more, and together could made the franchise formula more futureproof. There was one less positive influence over the last 10 years and that is that there was more competition on the market. With the increased competition, the
franchisor (b) had less influence on the market, due to a lower market share. This increased competition meant that the franchisees had to be more creative, and that there were more discounts on products in order to get the customers to their shop, which would negatively contribute to the product margins.
Part B: analysis of the data
In this part, I will pay close attention to the answers to the analytical questions which are depicted below. The answers on these analytical questions can be made understandable by applying theoretical ideas to what is found. I will start with the first analytical question.
Why is formal control by the headquarter sometimes perceived as beneficial and sometimes as detrimental to the self and/or the firm?
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turnover. The formal control measurements here entailed monitoring of all the financial figures of the firms, formal shop visits and telling the shop owner how to set the shop interior. With the monitoring of the finances, the franchisor could check if the franchisee reached the targets set. When the franchisee got a
reaction from the franchisor in terms of a financial punishment, e.g. lower discount rates for purchases, because the figures were too low, the formal control was perceived as detrimental for the shop. This gave franchisees the feeling that they did not get the support which was needed to run their shop in a profitable way, but instead get a punishment. When the reaction of the
franchisor is in the form of support, the franchisee perceives the formal control as beneficial for the shop.
The franchisees saw the necessity of formal control mechanisms that were implemented to protect the brand. A consequence of having low formal control of the franchisor could be free-riding behavior. This entails the failure of
following the franchisors procedures, and a lack of effort regarding the appearance of the shop (Gómez, González and Suárez, 2011). This could seriously damage the brand image and the other franchisees. So, there is a necessity for the franchisor to implement such formal control mechanisms. This is understood by the franchisees and accepted.
The formal control can be linked to the self-determination theory. When a franchisee is controlled, this involves acting with a sense of pressure. This
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happens when the franchisor understands the actions of the franchisee, and tries to cooperate with and help the franchisee whenever needed. This can be
translated to the franchisor-franchisee relationship in this paper, and especially to the formal control measures. It was found in the interviews that when the formal control measures entailed outcomes for franchisees in a non-cooperative way, the franchisees evaluated these as detrimental to the self and the firm. When the formal control measures were constructive, and helping the franchisee to perform better, they were evaluated as beneficial to the firm and the
individual.
The findings of the interviews can also be explained by an argument of Yamikova et al. (2019). These authors proposed and found that formal control focused on the monitoring of goals could be positively experienced by the franchisees when goal support procedures were developed based on this type of control. Meaning, that when the formal control is applied, this is done with the aim to help the franchisee, and not to punish in case of problems. This is
consistent with the findings as the formal control was evaluated positively when it resulted in support and feedback from the franchisor. It created a feeling of trust and cooperation among the franchisees, resulting in more trust and cooperative behavior.
It can be seen from the theory and the interviews that there is a need for autonomy from the franchisee perspective. From the data it flows that this is the reason that some respondents joined a franchise network instead being a branch office. When the formal controls give the franchisees some room for own
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Which actions of the franchisor are related to trust, or distrust, in the eyes of the franchisees?
There were several actions of the franchisor found in the interviews which are linked to the development of trust or signs of distrust. Firstly, getting more information from the franchisor from behind the scenes creates trust in the eyes of the franchisee. The franchisee got the feeling that he was more aware of the processes behind the decision making of the franchisor. This communication is important in a franchise relationship, because it can clarify the goals and
responsibilities, which are essential in setting the priorities and the coordinating activities of the franchise partners (Mohr and Nervin, 1990). Through the
communication, information can be shared, which is important to develop a trust-based culture. An prerequisite is that the information should be accurate and credible (Fernández-Monroy et al., 2018). This is in line with the findings in the interviews. When the franchisee provided the franchisees with information, which was in their eyes correct, they got the feeling that the franchisor trusted them.
Furthermore, getting support when needed is a prerequisite for trust. When the franchisees struggle with their shop, they often need help from the franchisor. When this help is provided, requested or not, it creates trust in the eyes of the franchisees. The reason that franchisees join a network is that they will receive support (Altinay and Brookes, 2012; Monroy and Alzola, 2005). The franchisee is dependent on the franchisor for this resource, and when the franchisor provides the franchisee with support, it has a positive impact on the level of trust of a franchisor (Altinay et al., 2014; Altinay and Brookes, 2012). So the findings here are in line with the existing theory.
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aiming to grow in the future, and that they take their job seriously. This is in line with the findings of Harmon and Griffiths (2008), who found in their paper that the role performance of a franchisor in terms of its international brand
reputation, marketing and training support that they offer to the franchisees is a prerequisite for the development of a positive relationship. This role
performance is aimed at the current and future state of the franchise chain, and it has a major effect on the willingness of a franchisee to develop a positive
relationship with the franchisor (Hopkinson and Hogart-Scott, 1999). This trust and commitment are important for the franchise relationship, as it results in ongoing stability of the relationship (Altinay and Brookes, 2012)
However, there are actions from the franchisor that results in signs of distrust at the franchisees. Firstly, when the franchisees feel the need to double check the franchisors actions, this is due to partial distrust. This need to double check is based on events that happened in the past, where the trust of the
franchisee in the franchisor was damaged by bad communication and promises which did not came true. This is in line with the findings of Grace and Frazer (2014), who argue that trust may turn to distrust, as a result of untrustworthy actions of the other. In a franchise relationship, there should be trust in order to have openness in terms of sharing information, coordination and the cooperation between the two parties (Hajdini and Windsperger, 2019). When the franchisee distrusts the franchisor due to events that happened in the past, this cooperative and open relationship will not happen, as distrust withholds the franchisee from cooperating in an open and honest way (Hajdini and Windsperger, 2019).
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Which combinations of trust and control promote brand supportive behavior and why?
When franchisees trust the franchisor, it can be seen that they react in a positive and cooperative way. This is due to the trust, as trust leads to more cooperation, coordination and the willingness to share information (Hajdini and Windsperger, 2019). However, a prerequisite for cooperative behavior in the eyes of the franchisees, is that the formal controls applied by the franchisor are believed to actually help the franchisee. With the weekly check of the
performance of the franchisees, it is expected that the franchisor provides the franchisees with feedback and support. When this is done in a cooperative way, it can be concluded from the interviews that the franchisees are more willing to work according to the rules, procedures and guidelines of the franchisor. Trust is here a prerequisite for the brand supportive behavior, as was argued in the
papers of Morgan and Hunt (1994) and Moorman et al. (1992), where it was found that trust is the willingness to rely on a partner in which the other partner has confidence, and the belief that the partner will act in the best interests of the other partners (Altinay and Brookes, 2014).
Moreover, Davies et al. (2011) argue that the trust the franchisee has in the franchisor integrity and competence, which in turn lead to more cooperative behavior of both the franchisees and the franchisor, and increased satisfaction. This is in line with the findings from the interviews. When the franchisor supports the franchisees, it can be found that the level of trust in the franchisor increases. As a result of this, the franchisee shows more cooperative behavior, which benefits the overall franchise organization. This is important according to Altinay et al. (2012), as when the trust progresses, the relationship is likely to yield more benefits.
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By researching the trust-control relationship and the effect on the brand
supportive behavior from the franchisees point of view, this study contributes to the current knowledge by supporting current theory and adding insights from the Dutch franchise formulas. This chapter will give an answer to the main research question by summarizing the findings. Furthermore, the managerial and
theoretical implications will be presented, as well as the limitations of this study. The main research question that is answered in this paper is:
How do franchisees perceive and evaluate formal control measures of the franchisor? Positively or negatively and why? Which actions of the franchisor are related to trust (distrust) in the eyes of the franchisees and which
combinations of control and trust promote brand supportive behavior?
First of all, this study took a look from the perspective of the franchisees, as this perspective is rarely researched (Sitkin, Long and Cardinal, 2020). This makes it possible that the control-trust nexus can be approached from the franchisees point of view, which could result in new insights.
Most of the franchisees evaluate the control measures of the franchisee positively. This positivity flows from the fact that the control measures result in advice and support when needed or requested by the franchisees. This
contributes to the success of their shops. This is in line with the study of
Yamikova et al. (2019), who found that formal control ,which is focused on the monitoring of goals, could be positively experienced by the franchisees. This positive evaluation is based on the fact that the franchisee would receive useful feedback and support, which in the end would benefit the shop.
Some franchisees evaluate the control measures of the franchisor
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control measures of the franchisor. When the formal control measures did not lead to support or useful feedback, and only created the feeling that the
franchisor was selfish, i.e. acting for its own profit, it led to negative evaluations of the control measures. These negative evaluations do not have a positive
impact of the development of trust and the level of cooperation.
The actions of the franchisor that are related to trust are mostly based on the support and the cooperation that the franchisees expected. This support and cooperation mostly come from the control mechanisms. This is in line with the study of Faems et al. (2008), who found that the formal control mechanisms that were designed to provide the user flexibility and to support the development of skills, the trust of the partner should increase. When expectations about the support and the cooperation were met, the trust of the franchisees increased (Faems et al. 2008). It flows from the results that trust of the franchisees is mostly based on the feeling that the franchisor is concerned about the wellbeing of the franchisee, triggered by support given by the franchisor. Moreover,
getting more information from the franchisor and having the feeling that the relationship is future oriented creates trust in the eyes of the franchisees. The franchisor signals trust with these actions, which create trust at the franchisees.
Control measures with the aim to help the franchisees and trust in the competence and willingness of the franchisor are prerequisites for brand
supportive behavior of the franchisees, as was found in the interviews. When the franchisor provided the franchisees with feedback based on the control
measures, this feedback was perceived as positive as it could help the franchisee improving their shop. Furthermore, we found that franchisees strive for
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(Yamikova et al., 2019), the franchisee gets the motivation needed to show brand supportive behavior. Furthermore, the cross-unit performance monitoring of the data of the franchisees enables the comparison to the colleague
franchisees. This resulted in more trust among the franchisees, and more
supportive behavior, which is in line with the social comparison theory (Cristy and Fox, 2014). According to Kidwell and Nygaard (2011), social comparison enables the franchisees to compare themselves to those with a better
performance, motivating them to show more brand supportive behavior and to show less deviant behavior. When the franchisee sees that other franchisees are doing better, he wants to improve as well. As there is a need in the mind of the franchisee to be the best, and to be recognized as the best.
Theoretical and Managerial Implications
By viewing the trust-control relationship and the influence on the brand supportive behavior of the franchisees from the perspective of the franchisees is a relatively new issue in the literature on franchise. Control is important in the franchise literature, also from the perspective of the franchisee. The franchisee evaluates the control measures positively when they lead to support. Thus the control of the franchisor may be beneficial for both parties in the end. This will increase the willingness of the franchisee to show brand supportive behavior. Moreover, when the franchisee gets more information from the franchisor, and gets the feeling that the relationship is future oriented, this contributes to the level of trust the franchisee has in the franchisor.
In practical terms, this research lead to important contributions that franchise formulas can use in their daily operations. Franchisees evaluate the control mechanisms of the franchisor positively, if they lead to benefits for their shops. Furthermore, there is a need for autonomy at the franchisees, and
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Research Limitations and Further Research
The first limitation of this research is that due to the Corona virus, less interviews were done than originally was planned. Originally ten interviews were planned, but due to the virus this was limited to three interviews. The other five interviews that were previously conducted with a different objective, were used and analyzed. The aim and scope of these interviews were different that for the interviews specifically conducted for this research. Due to this fact, the generalizability of this research is lower than anticipated on forehand.
Secondly, only two franchise formulas were researched for this topic. In order to increase the internal validity, future research could include more formulas, also from more industries, in order to improve the internal validity of the findings here.
Furthermore, future research could also investigate the difference between formal and informal control mechanisms, and the influence on trust and brand supportive behavior of the franchisees. This research should be done from the perspective of the franchisee, in order to complement the current research and understanding.
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Appendix
Appendix A. Interview protocol and questions
Interview protocol: Samenwerking in franchise netwerken
Allereerst hartelijk dank voor uw medewerking!
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Uw gegevens worden geanonimiseerd en uw naam zal ook in geen enkele publicatie genoemd worden. Zou ik het gesprek mogen opnemen zodat ik het nader uit kan werken? Expliciet om toestemming vragen!
Het interview zal ongeveer een uur duren. Laten we beginnen met de algemene vragen.
Onthoud: wees een luisterend oor aan wie de franchisenemer zijn/haar verhaal kwijt kan. Probeer vooral niet ter plekke te interpreteren wat de franchisenemer zegt…
Deel I: Algemeen (duur +/- 10 minuten)
De volgende vragen gaan over uw ondernemerschap bij formule X.
1) Kunt u iets vertellen over uzelf en uw activiteiten als franchisenemer bij formule X? a) Hoe lang bent u al franchisenemer bij formule X?
b) Aantal vestigingen bij formule X? Hoe heeft zich dat ontwikkeld?
c) Heeft u ook andere vestigingen? Bij andere formules of zonder formule? Hoe heeft zich dat ontwikkeld? Bij vestigingen bij meerdere formules, zeg dat je je echt wilt focusen op formule X.
d) Vervult u een functie binnen de franchiseraad en/of franchisevereniging van formule X? (het kan zijn dat het er niet is, of dat ze het anders noemen. Het gaat om een formeel overlegorgaan waarin franchisenemers vertegenwoordigd zijn).
………..……… ……….. ………..……… ……….. ………..……… ……….. ………..……… ……….. ………..……… ……….. ………..……… ……….. ………..……… ……….. ………..……… ………..
2) Waarom heeft U indertijd ervoor gekozen om franchisenemer bij formule X te worden? 3) Wat waren uw belangrijkste verwachtingen toen u begon? Zijn deze verwachtingen ook
uitgekomen? Welke wel, welke niet? En wat vindt u daarvan? Waarom?
