HUMAN RESOURCE CONFIGURATIONS IN THE MULTI-BRAND FRANCHISE

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Master Thesis

HUMAN RESOURCE

CONFIGURATIONS IN THE

MULTI-BRAND FRANCHISE

UNDERSTANDING THE LINK BETWEEN UNIT

OWNERSHIP TYPE AND THE CHOICE OF HR PRACTICES

AUTHOR: E.R. LOK STUDENT NUMBER: 2212587

MSC BA SMALL BUSINESS & ENTREPRENEURSHIP SUPERVISOR: E.P.M. CROONEN

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Acknowledgements

First of all, I would like to thank my thesis supervisor dr. Evelien Croonen for her constructive feedback and contributions to the development of my work. Furthermore, I am very grateful for the managers of the different MBF organizations that were willing to devote their time to participating in

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3 Abstract

Business format franchising is an increasingly popular business model in the Dutch retailing industry. Especially the concepts of multi-unit franchising (MUF) and multi-brand franchising (MBF) promise great potential for future businesses. Still, little is known in literature of these businesses as related to human resource management. Especially the MBF has received little to no attention. The MBF is a business model in which the franchisee exploits multiple franchise formulas over different units. This thesis tries to add to literature by introducing the concept of MBF as related to the choice of an HR configuration answering the question of how this specific unit ownership type influences the choice of HR practices. Using a contingent configurational perspective it is argued the organizational characteristics of the MBF lead to a choice of an HR configuration. It is hypothesized that the MBF will show many similarities to the medium-sized MUF. With regard to the five organizational characteristics of (1) unit HR operational autonomy, (2) incentives for local adaption at unit level, (3) degree of control and monitoring on HR activities at the unit level, (4) resource availability and economies of scale, and (5) heterogeneity of activities, this would lead to a lack of a choice between either a commitment/collaborative based or a productivity/compliance based HR configuration. Findings have confirmed the latter, but a more refined conceptualization of the characteristics of the MBF is needed. Results have led to five propositions that should help future research relating the MBF unit ownership type to the choice of HR configuration.

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2.5 Understanding the MBF ... 16 3. METHODOLOGY ... 18 3.1 Research Process ... 18 3.2 Sample ... 18 3.3 Data collection ... 18 4. RESULTS ... 22 4.1 Organizational Characteristics... 23 4.1.1 Organization A. ... 23 4.1.2 Organization B. ... 24 4.1.3 Organization C ... 25 4.1.4 The MBF ... 26 4.2 HR configuration ... 28 4.2.1 Organization A ... 29 4.2.2 Organization B ... 29 4.2.3 Organization C ... 30 4.2.4 The MBF ... 31

4.3 The relation of the variables ... 31

5. DISCUSSION AND CONCLUSION ... 34

5.1 Main findings ... 34

5.2 Limitations and future research ... 35

SOURCES ... 36

APPENDICES ... 40

A. Interview Guide ... 40

B. Questionnaire ... 45

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1. INTRODUCTION

Strategic Human Resource management is a rather complicated concept. Many scholars have tried charting the performance consequences of HRM (e.g. Delery & Doty, 1996; Jackson, Schuler, & Jiang, 2014; Wright, Gardner, Moynihan, & Allen, 2005; Tzabbar, Tzafrir, & Baruch, 2017). But even more discussion exists on how to formulate different measures and concepts of HR (e.g. Arthur, 1992; Arthur, 1994; Youndt, Snell, Dean, & Lepak, 1996; Lepak & Snell, 2002; Lepak, Liao, Chung, & Harden, 2006). Three theoretical approaches to HR can be recognized (Delery & Doty, 1996; Lepak & Shaw, 2008; Tzabbar et al., 2017; Croonen, Grünhagen, & Wollan, 2016): (1)the universalistic perspective, in which certain practices are deemed effective in all situations, (2) the contingency perspective, in which it is argued practices are only effective under particular circumstances, and finally (3) the configurational perspective, arguing practices are only effective when combined into bundles (configurations). All perspectives find some support in different studies relating to performance. Still, even though consensus exists for the existence and importance of the relationship between HRM and performance in the different perspectives (e.g. Croonen et al., 2016; Ružić, 2015; Tzabbar et al., 2017), a lot of disagreement exists over the constructs and measurements of HR. Finally, scholars have different views on how HR is positioned between other contextual factors and performance. Concluding their meta-analysis of the relationship between HRM and performance, Tzabbar et al. (2017) stress the relevance of the contextual factors influencing this relationship to understand the link between HRM and performance. In other studies however, these contextual factors are viewed as having a direct influence on HR. Several studies have linked the organizational design or objectives to the choice of an HR system. Here for example using the configurational perspective, the employment mode (Lepak & Snell, 2002) or franchising construct (Croonen et al. 2016) are the drivers of the different HR configurations.

Business format franchising is an increasingly important and most studied form of franchising (Gillis & Castrogiovanni 2012; Alon 2001; Shane 1998; Croonen et al. 2016). It is a relationship between the franchisor, exploiting a proven business format under the headquarters brand (Davies, Lassar, Manolis, Prince, & Winsor, 2011) allowing franchisees to semi-autonomously market their goods or services. The franchisee adopts an existing business format, but makes own investments in its units, has more decision rights than managers of company-owned units1 and is the residual claimant of its units (Grünhagen, Wollan, Dada, & Watson, 2013; Ketchen, Short, & Combs, 2011; Sorenson & Sørensen 2001; Croonen et al., 2016).

Many studies have been investigating the governing modes of both franchised and company-owned (CO) units (Bürkle & Posselt, 2008; Castrogiovanni & Kidwell, 2010). But within the

1_{The franchisor can simultaneously rent its brand to franchisees and exploit units of that brand on its own. A}

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franchises, more distinctions can be made. Where earlier studies have only focused on the difference between Single-Unit Franchises and Multi-Unit Franchises (Grünhagen & Mittelstaedt, 2005; Jindal, 2011) does a more recent study by Croonen et al. (2016) make a distinction between Single-Unit Franchise (SUF), small Multi-Unit Franchises (MUFSM) , medium Multi-Unit Franchises (MUFM), and

large Multi-Unit Franchises (MUFL). It is a distinction in which the unit ownership type of the

franchised units is defined by the amount of units from the same brand the franchisee holds. This thesis will however focus on a different unit ownership type: one that adds the dimension of multiple brands exploited by one franchisee. Research has been done investigating the complications of Multi-Brand Franchising (MBF) on the Franchisor level (e.g. duToit, 2008), but no research exists looking at MBF and HR on the level of the franchisee. Still MBF, along with MUF, are said to have great potential, possibly shaping the future of the franchising industry (Pearce, 2013; ING Economisch Bureau, 2012). MBF is defined in this thesis as a franchisee exploiting more than one franchising brand distributed over multiple units.

Multi-Unit Franchising has become increasingly popular, though little research has been done about the HRM practices in these unit ownership types. A recent study of Croonen et al. (2016) investigates HRM practices relating to performance in the context of franchises. Using a configurational perspective, they propose a relationship between the type of franchising construct and the chosen HRM configuration. Two different configurations of HRM practices are described, labeled ‘best practice’ and ‘best fit’. The ‘best practice’ configuration is characterized by standardization and formalization. Typically these adopted practices would have proven to be effective in other contexts (Universalistic approach). It is expected for CO’s and MUFL to adopt these practices. Second is a ‘Best

Fit’ configuration. Contrary to ‘best practice’, HRM is here adapted to local environment and unit employees (contingency approach) (cf. Youndt et al., 1996; Grünhagen et al., 2013). SUF and MUFSM

would use this configuration characterized by informal HR practices. It is then argued one form of franchising, namely MUFM, will be ‘stuck in the middle’ between those configurations, ultimately

leading to the lowest performance. They conclude a more refined conceptualization is needed of the configurations in a franchise environment in future research.

This thesis proposes a revised framework, extending research by Croonen et al. (2016), by adding a dimension of multi-brand franchises. Stressing the importance of strategic human resource management related to performance, the recent increasing popularity of MUF in the Dutch retailing Industry (ING Economisch Bureau 2012), and the potential future success of multi-unit, multi-brand franchises (Pearce, 2013) this paper is aimed at further developing the theory of strategic human resource management in a Franchising context. More specifically it will focus on the Multi-brand Franchisee and how it uses HR practices, answering the question: ‘How does a Multi-brand Franchise unit ownership type influence HRM practices at the unit level?’

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described? Second, using a contingent configurational perspective, the HRM practices imposed by the

franchisee in its units will be investigated trying to answer the sub-question: (2) What HRM

configurations can be defined and how are they used by the Franchisee of an MBF? Lastly, a

sub-question is formulated in relation to why these concepts interact: (3) Why do the organizational

characteristics of the MBF influence its HR practices?

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2. LITERATURE REVIEW

2.1 HRM practices

Numerous research has been done defining and conceptualizing Strategic Human resource Management. Linking HRM to performance, three distinct theoretical approaches can be defined, being used cross functionally (Lepak and Shaw 2008; Grünhagen et al., 2013; Croonen et al. 2016). First is the Universalistic perspective, which views HRM practices as being applicable in all contexts, leading to higher performance. Youndt et all. (1996) argue support has been found for this universalistic approach, or ‘best practice’, but that the definitions of the practices differ significantly. In Table 1 they sum up all best HR practices defined by different studies. Though they differ for each study, the tendency lies towards a high degree of training, a broad development of skills, job-rotation and cross-utilization. Overall thus lies an emphasis is on augmenting the skills base of the employees (Youndt et al., 1996).

Table 1: Summary of best practices in Human Resources from a universalistic perspective Freund & Epstein

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Arthur (1992) Pfeffer ( 1994) Delaney, Lewin, & Ichniowski (1989), Huselid (1995) MacDuffie (1995) Job enlargement Job rotation Job design Formal training Personalized work hours Suggestion systems Quality circles Salary for blue-collar workers Attitude surveys Production teams Labor/management committees Group productivity incentives Profit sharing Stock purchase plan Broadly defined jobs Employee participation Formal dispute resolution Information sharing Highly skilled workers Self-managed teams Extensive skills training Extensive benefits High wages Salaried workers Stock ownership Employment security Selective recruiting High wages Incentive pay Employee ownership Information sharing Participation Empowerment Job redesign/teams Training and skill

development Cross-utilization Cross-training Symbolic egalitarianism Wage compression Promotion from within Personnel selection Performance appraisal Incentive compensation Job design Grievance procedures Information sharing Attitude assessment Labor/management participation Recruiting intensity Training hours Promotion criteria (seniority vs. merit) Work teams Problem-solving groups Employee suggestions Job rotation Decentralization Recruitment and hiring Contingent compensation Status differentiation Training of new employees Training of experienced employees

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Second is the configurational perspective. With this theoretical approach HR practices can only be effective when combined into bundles (e.g. Arthur, 1994). It is argued a single HR practice is unlikely to bring a substantial positive effect (universalistic perspective), unless it is combined into a bundle of effective practices (Lepak & Shaw, 2008)

Lastly, the Contingency perspective views HR practices as only to be effective when adapted to situational factors. Lepak and Shaw (2008) distinguish between two types of contingency relationships. The first argues that contingencies like the organizational strategy influence the choice or effectiveness of individual HR. Employee behavior should follow a defined vision to which HR practices can and should be adapted. For example, less pay incentives and more stability and training can be implemented to align an innovation strategy (Jackson, Schuler, and Rivero, 1989). The second type of contingency relationship argues practices are most effective when, following a configurational perspective, they are combined into bundles and situational factors like industry, strategy and size are taken into account. Lepak and Shaw (2008) label this as a ‘contingent configurational perspective’. The contingency perspective thus investigates the influence of contingencies on the choice and/or the effectiveness of either individual practices of HR configurations.

Relating it to performance, support has been found for all theoretical approaches. A recent study of Ružić (2015) looking at the effects of HRM in the hotel company business, finds that the type of company ownership and size have no moderating effect. Cost of recruitment, growth rate and share of costs of benefits had the same effect on financial performance regardless of the situational factors, confirming a universalistic approach. A recent moderating meta-analysis by Tzabbar et al. (2017) shows strong support for the contingency approach as contextual and empirical design factors explain significant amounts of variance in their findings.

However, this thesis will take it one step back looking at the design and drivers of HRM without assessing the resulting performance. It will contribute to the contingent configurational approach, trying to understand how and when HR configurations are used interacting with the contingency of organizational size and structure. Different studies have linked HR configurations to performance, with the moderating effect of contingencies (e.g. Arthur, 1992; Youndt et al., 1996; Lepak and Snell, 2002; Kaufman and Miller, 2011). Yet, little consensus is to be found regarding the types of configurations and the practices that are included. Therefore no further attention will be devoted to the effectiveness of HR configurations in terms of performance. Solely will be focused on the influence of contingencies, in terms of organizational structures in Franchises, on the choice of an HR configuration.

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dichotomy of HR systems, following a different argumentation. Youndt et al. (1996) define capital-enhancing and administrative HR systems, following different manufacturing strategies. Osterman (1994) distinguishes between high-road and low-road strategies, with the former leading to a configuration of more innovative HR practices. Finally do Croonen et al. (2016) propose a ‘best fit’ or a ‘best practice’ configuration, depending on the type of unit ownership.

Miles and Snow (1978) use three distinct strategies of firms based on their attitude towards competition and link it to different uses of HR practices. The resulting configurations, being part of a defender, prospector or an analyzer strategy, vary mainly in their degrees of centralization and formalization, and use of information systems. A fourth type of organization was labeled the ‘reactor’, which mainly characterizes the residual strategy when none of the other strategies is properly used. Lastly are the four distinct configurations as formulated by Lepak and Snell (2002). These configurations give the most elaborate distinction between configurations based on the company strategy with different employee groups within an organization. The Compliance-based HR configurations are used when the job is simple and employees need to ‘comply’ with the format and the rules of the job. Productivity-based are HR systems for jobs that are to a high degree standardized as well, but increase in productivity is encouraged. It proves in training aimed at productivity and skills improvement and individual bonuses. The commitment-based and collaborative-based configurations consist of more loose practices. More flexibility and long-term vision apply to both, where collaborative-based also has a focus on improving effectiveness as a team.

Table 2. Examples of HR configurations

Arthur (1994) Miles & Snow (1978) Lepak & Snell (2002)

Control Commitment Defender Prospector Analyzer Commitment

Based Productivity Based Compliance Based Collaborative Based High Bonus %

Decentralization Centralized Low degree of formalization Moderately centralized Flexible but secure jobs Standardized

jobs Simple jobs

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While most research is focused on the influence of strategy on HR configurations, other factors like industry sector and technology have been argued to play a role in the effectiveness and choice of HR configurations (Lepak & Shaw, 2008). Other research has added to this view of how contingencies should influence the choice of HR systems that lead to the highest performance. Lepak et al. (2006) argue all HR systems should be aimed at following one particular strategic objective. These systems help by influencing employee skills, motivation and their opportunities to contribute. Croonen et al. (2016) argue that the unit type of franchises leads to the choice of HR systems and ultimately HR performance. More specifically would these choices arise from the differences in organizational characteristics. These characteristics are defined as the level of operational autonomy, incentives for local adaption, monitoring and control systems, and the availability of resources and economies of scale (Croonen et al., 2016; Brand & Croonen, 2010; Grünhagen et al., 2013; Jindal, 2011; Yin & Zajac, 2004; Sorenson & Sørensen, 2001)

This thesis will focus solely on the relation between the unit type of franchises and its HRM practices, provisionally ignoring the performance effects. The contingency perspective would argue the organizational structure influences the relation of HRM practices and performance. In this thesis it is therefore argued the unit ownership type influences the choice of HRM practices.

2.2.1 Unit ownership types. The study of Croonen et al. (2016) builds a model distinguishing between five different unit ownership types of franchises. First is the SUF, consisting of a franchisee that owns a single unit under one franchising brand. The CO unit manager similarly holds one unit, but differs from the SUF manager in that the unit is owned by the franchisor. Then, a distinction is made between three types of MUF: MUFSM, holding 2-3 units, MUFM, holding 3-5 units, and MUFL holding

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Unit ownership type Units

Company-owned (CO) 1 unit

Single-Unit Franchise (SUF) 1 unit Small Multi-Unit Franchise

(MUFSM)

2-3 units, single brand Medium Multi-Unit Franchise

(MUFM)

3-5 units, single brand Large Multi-Unit Franchise

(MUFL)

5+ units, single brand Multi-Brand Franchise (MBF) Multiple units,

multiple brands

As is depicted in figure 1, management in business format franchising can be divided into three levels. The franchisor or headquarters (HQ) is considered first level management. The franchisor has contracts with the managers from the different organizational forms (CO, SUF, MUF, and MBF), representing second level management. Early studies have explored why HQ might manage only CO units, only franchised units, or a mixture of the two (e.g. Carney & Gedajlovic, 1991; Combs & Castrogiovanni, 1994; Lafontaine, 1992; Minkler, 1990; Norton, 1988). In this thesis it is assumed first level management both holds employment contracts with second level management from CO units, and franchising contracts with second level management from franchised units. This first type of contract creates salaried managers, while the second type creates owner managers on the second level (Yin & Zajac, 2004). Moreover, it is assumed these contracts do not preclude the franchisee to exploit multiple franchising brands. A franchising contract gives the franchisee the right to exploit an outlet of HQ, claiming the residual profits after paying franchising fees (Yin & Zajac, 2004). Franchising fees typically include payment at the beginning of the contract and royalties for its duration (Kaufmann & Dant, 2001)

Finally, a distinction is made between second and third level management. To own and operate its units, second level management should only exploit one outlet. With an increased amount of units owned by the franchisee, second level management typically has to hire unit managers to separately operate each outlet as they cannot operate all units on their own (Jindal, 2011). These managers are labeled third level management.

Earlier research relating HR systems to unit performance in a franchising context has done so on a unit-level (e.g. Brand & Croonen 2010; Croonen et al. 2016). Research would have to focus on third level management as to observe how it is operating and performing. In the case of the CO, the SUF and maybe even the MUFSM, unit management will probably be performed by second level

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MUFL, and MBF, third level management will be added. This thesis is not aimed at describing unit

performance, but rather at understanding the differences between the organizational forms at the second level management and how this influences their choice for HR configurations at the unit level.

Figure 1. Organizational forms in franchising

2.3 Organizational characteristics

In literature regarding franchising organizations, differences between unit types can be described among multiple dimensions: decision making authority (Bradach, 1998; Yin & Zajac, 2004; Brand & Croonen, 2010; Grünhagen et al., 2013), incentive for local adaption (Bradach, 1998; Sorenson & Sørensen, 2001), monitoring and control systems (Yin & Zajac, 2004; Sorenson & Sørensen, 2001), and availability of resources and economies of scale (Brand & Croonen, 2010).

2.3.1 Decision making authority. Makadok and Coff (2009) describe franchising as a hybrid form, distinguishing between Market and Hierarchy forms of governance. Franchised units operate in a form of hierarchy, yet have more authority to decide how to operate and what other activities to engage in. As the owner of the assets, franchisees are residual claimants of their units (Brands & Croonen, 2010). Therefore, franchises generally have a local choice, where company-owned stores have to comply to the organization as a whole (Yin & Zajac, 2004). Forms of decision rights are described by Michael (1996) in location, price levels, hours of service, and hiring. From the agency perspective company-owned units are operating in a strict hierarchy form of governance in reaction to the problem of risk sharing. Franchising however, moves the risk to the franchisee, reducing the separation of ownership and control (Yin & Zajac, 2004), so the first level management has less need of monitoring the second level managers. But in multi-unit franchising this agency problem is reintroduced as franchisees typically hire managers to manage the different units (Kaufmann & Dant, 1996; Jindal, 2011; Garg, Priem, & Rasheed, 2013). To conclude, the decision making authority regarding HRM at the unit level is high for SUF and MUFSM, medium for MUFM and MBF, and low

for MUFLand CO.

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claimant status (Brand & Croonen, 2010), influence the incentive for local adaption. When this is the case, managers might be more eager to engage in closely supervising operations, decreasing costs, and increasing demand (Makadok & Coff, 2009; Michael, 2002; Yin & Zajac, 2004). Thus the incentive for local adaption at the unit level too will be high for SUF and MUFSM, medium for MUFM and MBF,

and low for MUFLand CO.

2.3.3 Monitoring and control system. Managers of company owned units are likely to be monitored and controlled (Sorenson & Sørensen, 2001; Yin & Zajac, 2004) and thus have great incentives to follow company standardized practices (Croonen et al. 2016). MUFSM and SUF are likely

to be involved in a great deal of monitoring and control for their higher stakes in the outcome of operations. MUFL are likely to monitor and control their unit managers to a great extend for the same

reason the Franchisor does for its CO units (Combs & Ketchen, 2003; Croonen et al. 2016). For medium sized MUF and MBF the monitoring and control activities are expected to be the lowest. The amount of units is too big for the manager to monitor and control and the amount of resources is too low to introduce a tight control and monitoring system for all units.

2.3.4 Availability of resources and economies of scale. An increased amount of units and with that an increased profit brings more financial resources and access to economies of scale for second level management. This relates to HRM as the development of standardized HR practices for example would require large capital investment (De Kok, Uhlaner, & Thurik, 2006; Jennings, Jennings, & Greenwood, 2009). The availability of resources and access to economies of scale is thus expected to range from low for SUF and MUFSM,to high for CO and MUFL, with the MUFM and MBF

positioned in between.

2.3.5 Heterogeneity of activities. Lastly the argument of Lepak and Shaw (2008) is added to the organization characteristics as the heterogeneity of activities. They stress the importance of future research on how organizations simultaneously use multiple HR systems on different groups of employees. Here a distinction is made between core workers and non-core workers within an organization, where core workers typically attract the majority of the focus, shaping the HR configuration. Still, being greater in numbers, non-core workers might actually have a greater influence on firm performance and multiple systems should be in place. Following this argument, an organization comprised of multiple units might have one particular unit as its core-unit. Activity is homogeneous where managers of the franchise organization can focus on one single of unit, or are able to standardize operations for all its units based on one particular unit type. CO and MUFL are

expected to use standardization as they have highest access to the capital needed to standardize its HR practices (cf. De Kok et al. 2006; Jennings et al. 2009). Second level management of the SUF and MUFSM are expected to be able to self-manage the units as the amount of units is low and the units

share the same brand. For the MBF and MUFM the heterogeneous activity is probably higher as the

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2009). Still, for the MBF the heterogeneity of activities should be even higher as the structure and operations of the units differ.

2.4 The choice of HR systems

Table 4 is a summary of the organizational characteristic differences among the unit ownership types. The differences result in varying choices of HR systems. Croonen et al. (2016) argued these systems to be either ‘best practice’ or ‘best fit’, a dichotomy which characteristics can be closely linked to those configurations defined by Arthur (1994) of Commitment and Control. The latter is characterized by the use of formal standardized practices, or ‘best practices’. While the commitment approach uses informal practices or has a lack of formal practices, characterizing a ‘best fit’. This thesis however will use the distinctions of Lepak and Snell (2002) as they are more clearly operationalized. As described earlier (see Table 2) Lepak and Snell (2002) distinguish between four types of HR configurations based on either productivity, compliance, commitment, or collaboration. Still these distinctions show similarities to the dichotomy of Arthur (1994). Productivity and Compliance based HR configurations show many similarities with a Control configuration seeking efficiency. Commitment and Collaborative based practices are comparable to a Commitment configuration seeking production quality.

Table 4. Differences between unit types Unit ownership type Organization characteristics Expectations regarding HR system Unit HR operational autonomy Incentives for local adaption at unit level Degree of control and monitoring on HR activities at the unit level

Resource availability and economies of scale Heterogeneity of activities

CO Low Low High High Low

Productivity/Compliance-based

SUF/MUFSM High High High Low Low

Commitment/Collaborative-based

MUFM Medium Medium Low Medium Medium Stuck in the middle

MBF Medium Medium Low Medium High Stuck in the middle

MUFL Low Low High High Low

Productivity/Compliance-based

Note. Partially reprinted from Croonen, E. P., Grünhagen, M., & Wollan, M. L. (2016). Best fit, best practice, or stuck in the middle? The impact of unit ownership on unit HR performance in franchise systems. International Entrepreneurship and Management Journal, 12(3), pp 705.

The fact that CO and MUFL generally hire managers for their units giving them low decision rights

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second level management in case of the MUFL, as their large number of units provide enough

resources but introduce an agency problem (Brand & Croonen 2010; Croonen et al. 2016). These organizational structures are thus likely to develop HR systems aimed at efficiency and compliance resulting in a Productivity or Compliance based HR system. MUFSMand SUF have higher incentives

for local adaption. Higher operational autonomy (Croonen et al. 2016), less monitoring by headquarters (Sorenson & Sørensen, 2001; Yin & Zajac, 2004) and lower financial resources (De Kok et al., 2006; Jennings et al. 2009) give managers room to find a more personalized approach (Brand & Croonen 2010). Managers can be at their units on a regular basis and use informal practices. It is likely to result in commitment or collaborative based HR systems.

Lastly, MUFM, & MBF are expected to be ‘stuck in the middle’. If provided with best practices

by the franchisor, they will likely use it, for it is the cheapest alternative. For the MUFM Croonen et al.

(2016) argue a personalized and informal approach is not possible, because the number of units is too big to be present in every one of them on a regular basis. Moreover, their resources are, similar to the SUF and MUFSM , too scarce to develop an effective formalized system. Especially for the MBF it is

hard to find the core unit shaping the HR system. Different units might need different attention and approaches to HR. It is likely to lead to a schizoid organizational HR design (Jennings et al., 2009; Croonen et al. 2016). MBF management not only copes with different units that require specialized attention like the MUFM, but has to cope with different formulas as well. Management needs the

knowledge and specialization to effectively govern HR in all its units, as it cannot introduce one system that will be a best fit.

2.5 Understanding the MBF

Extensive research has been done defining constructs of HRM. Very little research however exists in the field of franchising in relation to this matter. Brand & Croonen (2010) claim even to be the first assessing this relation specifically, comparing Franchised and Company-owned units. Croonen et al. (2016) further develop the study, but still little is known on how Franchising constructs affect the choice and use of HR systems. This thesis will add to this thin knowledge, introducing the MBF to the framework, trying to explain its relation to HR systems.

Even though it is argued in this section that MBF suffers from similar obstacles the MUFM is

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management have the unique opportunity of cross-functionally employing. Employees can be switched from one formula to another and their expertise can be shared in multiple locations. Management can thus learn from experiences from one franchise brand and use it in another.

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3. METHODOLOGY

3.1 Research Process

To contribute to the model as proposed by Croonen et al. (2016) short interviews were conducted with managers of Dutch MBFs. Literature is very thin on the different types of franchised units in relation to HR practices and even less research has been done about its relation to MBF. Research is exploratory trying to explain the relationship between the organizational characteristics of the MBF on the on hand, and the use of HR practices on the other. This thesis is aimed at theory development, filling a gap in the literature on the relation between Franchise constructs and HR configurations. In the results section propositions were formulated derived from the findings.

3.2 Sample

The MUF construction is a growing and promising concept in the Dutch Business model Franchising industry (ING Economisch Bureau, 2012; Pearce, 2013). To add the construct of MBF to the model of Croonen et al. (2016) three Dutch MBF organizations will be interviewed. One MBF can however vary significantly from the other. Findings for an organization operating in one industry can hardly be generalized for an organization active in the next. For an MBF it is even possible to be effective in multiple industries at the same time. To be able to produce representative results for a particular type of MBF, the Dutch retailing industry is chosen to find respondents. More specifically were those organizations addressed exploiting at least one supermarket, along with at least one more franchising brand. The choice for the inclusion of a supermarket was that a supermarket is a firm that employs relatively many people in each unit and is therefore probably a demanding part of the MBF organization for its HR practices. This research is aimed at developing theory, rather than testing it, explaining the theoretical sampling (Eisenhardt & Graebner 2007). Cases are selected that show similarities to some extent to rule out particular alternative explainations (Yin, 1994).

From the organizations a member of second level will be interviewed and asked to describe how the MBF functions as a whole under its Franchisors, and how its units carry out their HR practices.

3.3 Data collection

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 Unit HR operational autonomy (Bradach 1998; Yin & Zajac 2004; Brand & Croonen 2010; Grünhagen et al. 2013),

 Incentives for local adaption at the unit level (Bradach 1998; Sorenson & Sørensen 2001),

 Degree of control and monitoring on HR activities at the unit level (Yin & Zajac 2004; Sorenson& Sorensen 2001),

 Resource availability and economies of scale (Brand & Croonen 2010),

 and the Heterogeneity of activities (Lepak & Shaw 2008).

In the MUF and MBF however, these variables can be defined in two ways. Looking for example at the HR operational autonomy: From the agency perspective it is argued that units that are franchised receive high operational autonomy from HQ, but that this autonomy declines as the number of franchised units increases under the same MUF. It is thus argued that the received HR operational autonomy by the franchisee of the MBF is high, while the granted autonomy for its unit managers is significantly lower. Therefore, except for heterogeneity of activities, all questions about the organization characteristics are split into both ‘perceived’ and ‘granted’. This part of the interview will be open ended to understand the reasons and motivations of the MBF top-management for their HR policies.

The second variable at the basis of the interview is the resulting HR configuration. As described in the theory section, the HR configurations as defined by Lepak and Snell (2002) will be used. To distinguish between the four configurations (Productivity-, Compliance-, Commitment-, or Collaborative-based) they use five main categories: the job design, the selection/recruitment process, the training activities, the performance appraisal, and the compensation/rewards. Each category is assessed through a couple of statements to which the interviewee is to comment with a number on a likert scale from 1-5. The same questions will be used in this interview and can be found in Appendix A. All five categories of each configuration relate to a certain amount of statements. The maximum score for example, on the collaboration configuration for the job design category, would be 15 points (three questions, of which one reverse coded each with a maximum of five points). The actual score of the interviewee will be expressed as a percentage of the maximum score.

Lastly, few other questions were added that could possibly explain the HR configuration or its relation to the organization characteristics. The managers will be asked to describe the structure of their organization and their specific role in this. But moreover will they be asked about their experience in the industry, the provision of HR practices by HQ, and how they use the specific characteristics of the MBF in their advantage by for example rotating employees along the different franchising brands. The full interview with the Dutch translation can be found in Appendix B.

Yin (1994) describes four different criteria for the evaluation of qualitative research: Construct validity, internal validity, external validity, and the reliability of the study.

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on the one hand, and the HR configuration on the other. For the definition and measurement of these concepts existing literature is used, while only the variable of ‘heterogeneity of activities’ is added. Still, all results originate from the interviews held with second level management only. No triangulation by use of other documented sources or interviews with third level management was performed due to a lack of time.

The internal validity of a study refers to the causality of the concepts. The interviews were held at one moment in time, relating the organizational characteristics of the MBF to its HR configuration. Interviewees were asked how they viewed a relationship between the concepts, but these results are self-reported and would have been better observed in a longitudinal study observing the organizational characteristics change over time in relation to changes in HR practices. Three forms of internal validity are described by Robson (2002):

- validity of describing the phenomena is at risk as the data could be incomplete or inaccurate. The data in this study are processed by a single researcher, but the interviews were recorded in full and transcribed.

- The interpretation is at risk as a researcher could focus on fitting results in a predesigned framework instead of objectively observing the phenomena from which the framework should be derived. Building upon an existing framework it was hard assuring validity here, but the interviews have a semi-structured design with open questions for the description of the organization so alternate explanations of the phenomena would have the chance to be discovered.

- Finally is the validity of the understanding at risk in form of three threats. First is the reactivity, referring to how the presence of the researcher could lead to preferred outcomes. Interviewees are however only asked to describe the structure and HR operations of their organization, inducing low risk of reactivity. Interviews are however conducted, transcribed and coded by one researcher, inducing a possible researcher bias. Moreover does a respondent bias exist as the results are self-reported by the interviewee and not confirmed by other sources. The respondent may have given preferable responses and leaving out parts of the whole story.

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with three different sizes, ranging from small (three units) to large (more than ten units). This would probably lead to contrasting and more interesting results differentiating the organizations. However, the amount of organizations interviewed is rather low, even further reducing the generalizability.

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4. RESULTS

The sub questions of this thesis adding to the central research question of how the MBF unit ownership type relates to the HR configuration, are threefold. The first relates to the organizational characteristics of the MBF and the second tries to understand the HR configuration. In this section these two variables will be considered separately and each part of the theory is compared to evidence from the cases as suggested by Eisenhardt & Graebner (2007). First each case will be separately, and then all cases together are assessed in across-case analysis combining them to literature. The last section will be focused on why the variables interact and propositions are formulated to answer the third sub-question.

In Table 5 the basic descriptives of the three investigated organizations are to be found. The names of the organizations are being left out and replaced by Organization A, B, and C. As was described in the methodology section, the organizations have in common that they all exploit at least one supermarket.This was done as it was expected the supermarket would play a major role shaping the HR configurations in the MBF and therefore this effect should be present with all respondents to find comparable results (literal replication). The different organizations however managed these characteristics differently. Where organization A split the management of its supermarkets and combined the other smaller units, organization B used a hierarchical mode where the smaller non-supermarket units were managed by the location manager of one non-supermarket.

Table 5. Organization descriptives Organization

name

Descriptives

A  Two supermarkets, one drugstore, one liquor store, and two tobacco stores.

 It is a family business and management is divided geographically over two different cities. The interviewee manages three locations and does the administration for all locations. Lastly the family owns some real estate as well.

 Second level management is performing unit management, but does at the same time employ separate unit managers (third level management)

B  The organization consists of more than ten units of which most supermarkets. Units comprise four different brands in total.

 Interviewee is in charge of HR for all units. Units are geographically dispersed over different cities.

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C  One supermarket, one liquor store, and a pub

 Interviewee is owner and manager of all three units which are located in the same building. This structure (supermarket combined with a pub in the same building) was the prime version for the brand.

 No third level management was currently hired, but family was increasingly incorporated anticipating future growth to more locations.

Looking at the organizational characteristics of the three MBFs, each organization is described separately regarding the five variables described earlier. Then an overview is given relating the cases to the literature, summarized in Table 6.

4.1 Organizational Characteristics

4.1.1 Organization A. With regard to HR operational autonomy, organization A received and granted rather high degrees of freedom. The interviewee replied: “We receive full freedom, because it’s our own responsibility”. First level management seemed to be willing to grant second level management of franchises a great level of autonomy as they were liable over their own operations. Similarly, though surprisingly, third level management received a high degree of freedom on particular HR practices as well. First level management provided HR practices to some extent, which were implemented by second level management, with the addition of some practices developed by them. Third level management had to implement these practices, but was for example free to hire employees autonomously. Unit managers were thus prescribed HR practices related to for example training and evaluation, but received much autonomy to behave like a local entrepreneur. The autonomy was therefore graded ‘medium’ as can be found in table 6.

For the incentives for local adaption, management had the incentives and goal to locally adapt the units. The medium size of the organization allowed second level management to personally see to this adaption, that takes form in a ‘personal touch’. The interviewee stated that internally for HR there was a high focus on transparency. Employees have to find joy in their work and feel at home. To the external environment this personal touch translates in the fact that management has been the same for over 17 years and customers know them. “This might differ from a CO unit where management tends to shift after a couple of years” she explained. To create the incentive for local adaption at the third level management, no financial rewards were used. “Financial rewards are satisfactory for one or two months, but after that it grows into something ordinary and people want more.” Rather they made use of rewards that offered third level management to grow within the organization, receiving more training or higher positions. Incentives for local adaption at the unit level are therefore labeled medium/high.

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not tight, as they were granted high levels of autonomy. The degree of monitoring and control was therefore ranked medium.

Regarding the resource availability and economies of scale, organization A had an advantage over the smaller organizations and single units, as it was able to pool its incomes to use it for future investments in for example the most recent addition to their organization: a new tobacco store. Finances were however mostly dealt with separately for each unit. The extra availability of human resources including people with different expertise and training was however not used across different units as an advantage. The interviewee explained the contracts for their employees held a clause that required their employees to be employable in one of their other locations, but it was only when they really did not have any other choice. Resource availability was therefore rated medium.

Finally the heterogeneity of activities was rather high for the organization as a whole, given they were exploiting five different brands. However, the majority of the employees was employed in one of its two supermarkets. These units therefore received the majority of the focus, along with the fact that the supermarket franchisor provided by far the most and most developed HR practices that the MBF could partly use in its other units as well. Resulting the heterogeneity of their HR activities to be medium.

Table 6. Organizational characteristics per MBF

Organization HR operational autonomy Incentives for local adaption Degree of control and monitoring Resource availability and economies of scale Heterogeneity of activities

A Medium Medium/high Medium Medium Medium

B Medium Medium High High Medium

C High High High Low Medium

4.1.2 Organization B. The HR operational autonomy of Organization B was very similar to how the interviewee of organization A had described. Firstly, from first level management the received autonomy was very high. Second level management was free to shape its HR practices, but was provided with tools that were optional for use. And even though the size of the organization was significantly bigger, the autonomy granted to the unit managers was rather high as well. Similarly third level management was provided tools for training and evaluation, but was free to hire its own employees. It was given shape by an ‘employee promise’ in which third level management is guaranteed a certain level of autonomy: “We want our unit managers to behave like local

entrepreneurs and that needs freedom.” Still, freedom was not unconditionally: third level

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interviewee explained HR operations communication went both ways, but second level would interfere when performance was getting worse. Operational autonomy was therefore rated medium.

This wish of second level management for its third level management to ‘behave like local entrepreneurs’, illustrated their incentives for local adaption. Third level management received financial bonuses to qualitative and quantitative results increasing their incentives. Though, the interviewee assured this was definitely not the only reason their unit managers were eager to optimize their stores, as the operational freedom contributed as well to the personal involvement of the managers. The incentives were rated medium.

The degree of monitoring and control was considered high for the unit level. The hierarchical mode was a bit firmer and formalized aligning the size of the organization. The need for this formalization was illustrated as the interviewee replied “I try to be present in the stores on a regular basis, but can do that less than I want to.”

Resource availability and economies of scale were similarly rather high with regard of the financial resources. The size of the organization gave them the opportunity to invest in more units and locations. Still, employees were not used simultaneously across units. Third level management was however able to transfer from one unit to another occasionally to share expertise and get to know more units of the organization. Overall, resource availability and economies of scale was labeled high for organization B.

Finally, the heterogeneity of activities was rated medium for organization B. Even though the amount of units was high, and at the moment of interviewing, they held four different brands, the organization clearly operated with the supermarkets as its core units. They employed a hierarchical model in which the location manager of one supermarket was in charge of the other formulas that were located next to it. Second level management of the MBF thus had to deal with some extend of heterogeneity of activities, but only to a moderate level.

4.1.3 Organization C. The HR operational autonomy for unit management was a bit different for organization C. The operational autonomy received from first level management was high. Some HR practices were provided, but as the units were owned by the franchisor, second level management was free to use its own practices. This organization differed from organization A and B in the sense that no third level management was hired to operate the separate units. Second level management was simultaneously unit management, which meant he was operating with a high degree of autonomy.

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speed, and when the customer returns the next week you remember what he told you. That’s hospitality!’ The interviewee explained he used all the HR practices that were provided by first level

management, but always added his personal touch. ‘I make it more humane’ he explained.

The degree of monitoring and control was high as first level management gave second level management all the freedom, but second level management managed the units by itself. Surprising were however, the stories the interviewee told about his encounters with first level management, especially regarding his ambitious projects. With the successful start of his management of supermarket in a very small village, the interviewee built Hollands first earthquake proof location and was the first to open a pub linked to the supermarket. In the process first level management tried to slow him down, as the interviewee explained. They wanted him to go for another location to make it a success, and not for his own novel ideas. He refused, nonetheless, to fulfill his own plans. Still, looking at the unit level, second level management was able to monitor and control all three units regularly as they were located in the same building.

The resource availability and economies of scale were not significantly higher than that of a single unit, especially not when compared to a supermarket located in the urban areas. His customer numbers were low as the village he was located in is fairly small. The exploitation of three units did not give him access to economies of scale. Moreover he did not use employees in multiple units simultaneously. Only in extreme cases two of his supermarket employees were employable in the pub.

Finally, the heterogeneity of activities was moderate, as one single manager was operating three different units. Still, the fact that all units were located in the same building allowed him to be present in any unit at any time. His focus could be switched from one unit to another in a moment’s notice.

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confirming a moderate score on unit operational autonomy. Remarkably, respondents acknowledged sometimes the autonomy they received from first level management was a bit too high. Though freedom was deemed rather important, it was noted they would have liked to more easily consult with first level management and receive all the HR tools that were developed for CO units. At this moment HQ seemed to be a little too distant.

As was theorized in literature, compensation dependent on the unit performance (Makadok & Coff, 2009) and asset ownership and residual claimant status (Brand & Croonen, 2010) increase the incentive for local adaption. These conditions are naturally present in the MBF organizational form. It needs however be noted that a significant variation in the amount of units existed between the interviewees, ranging from three to as much as fourteen units. With the increased incentive for local adaption management would be more willing to closely supervise operations, decrease costs and increasing demand (Makadok & Coff, 2009; Michael, 2002; Yin & Zajac, 2004). However, with the scale of some of the organizations this close supervision would be rather difficult. This could explain the different forms of rewards granted by second level management to its third level managers. Organization A shunned financial rewards for its managers, while organization B did use financial rewards, though assuring this was definitely not the only reason for their managers to deliver good performance or to locally adapt. All interviewees have the incentives and goal to locally adapt the units. The smaller constructions allow second level management to personally see to this adaption, that takes form in a ‘personal touch’, while organization B uses the instruments of financial rewards and an ‘employee promise’ to guarantee their freedom.

The degree of monitoring and control on HR activities at the unit level was expected to be low for the MBF. The amount of units was too high to regularly visit and monitor, while resources were too low to develop control and monitoring systems for all units. It was however evident, looking at the respondents, that size played a major role here, similarly to the resource availability and economies of scale. For both variables it was hypothesized the score for the MBF would be medium, mainly for the variety and amount of units that were part of the organization. The interviewed organizations were however varying in size similar to the range of MUFSM to MUFL. As can be seen when comparing

Table 6 to Table 4, organization C scores like the MUFSM and organization B scores like the MUFL

when looking at resource availability and degree of monitoring. This indicates a clearer disctinction should be made between the different sizes of the MBF. Still, organization A did not entirely match the expectation regarding the degree of monitoring and control at the unit level. The supermarket provided its franchisees with useful tools for the evaluation and training of employees, which enabled this medium sized MBF to effectively and efficiently monitor and control its employees.

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a bad idea, as it would not serve the will of their employees and it would only give extra work and monitoring.

Finally, the fact that the MBF organization holds different formulas for franchises would suggest the heterogeneity of activities that managers have to engage in is high. Not only do they face the challenge of managing different units, but do the significant differences among the units require different expertise and experience from management as well. This was true in all cases to a certain extent, but was however overcome in different ways. Firstly, in organization A and C, the majority of the employees was employed in the supermarket. These employees therefore received the majority of the focus, along with the fact that the supermarket provided by far the most and most developed HR practices that the MBF could partly use in its other units as well. Secondly, the larger MBF employed an hierarchical model in which the location manager of one supermarket was in charge of the other formulas that were located next to it. Second level management of the MBF thus had to deal with some extend of heterogeneity of activities, but only to a moderate level. Finally, organization C had the great advantage of its three units all being located in the same building. His focus could thus very easily switch from one unit to another.

In table 6 is a summary of the five organizational characteristics for each MBF interviewed.

4.2 HR configuration

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Figure 2. HR configuration scores of each organization on every category

4.2.1 Organization A. Rather interesting are the high scores for the training and appraisal practices for each configuration within organization A, as can be seen in tables 8.1 and 8.2. This could be explained by the amount of training and appraisal practices provided by the supermarket. The interviewee explained how of all formulas the supermarket chain provided the most advanced tools for these categories. To correctly carry out the formula these practices were implemented rather strictly, with the addition of some own personal insights. This possibly explains the high scores for these categories on both the productivity/compliance based configuration, following the best practices introduced by first level management, and the commitment/collaborative based configuration that would emerge from the practices introduced by second level management. Overall, organization A tends slightly towards a productivity/compliance configuration, but with the high scores on training and appraisal, it scores rather high with the commitment/collaborative configuration as well.

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it scores quite high in the commitment/collaborative based configuration. This might as well be an indication of cherry-picking HR practices (Croonen et al., 2016), predominantly using one configuration while combining it with an own ‘best fit’. Looking at Table 2 in Chapter 2, the commitment/collaborative configuration focusses on ‘potential’ and ‘skill’ in its selection process, while the productivity/compliance configuration is about quantity, using many different instruments and performing many job interviews. The choice for a focus on potential and skill, rather than standardized practices and instruments might be explained by their incentive for local adaption in form of a ‘personal touch’. Finally, the score for the category of training in the commitment collaborative configuration is rather low, especially when compared to the other two organizations. Training in the commitment/collaborative configuration is continuous and focusses on long term and team building. Training in the productivity/compliance configuration focusses on improving productivity. The choice of organization B for the productivity/compliance configuration in this category, might be explained by the distance between second level management and its unit employees. The amount of units is rather high by which the possibility for local adaption is limited.

4.2.3 Organization C. Looking at figure 2, it can be found that organization C scores highest on the commitment/collaborative configurations of all interviewees. This could be explained by the personal influence the interviewee has as the only member of second level management and with the lack of third level management. The interviewee explained how he used the practices that were provided by the supermarket, but noticeably added his own personal touch. Especially in the categories of training appraisal and design he had his own views in which he wanted to ‘make people better’. The high scores on the training, appraisal, and rewards for the productivity configuration can be explained by his use of the practices as provided by the supermarket. ‘I’m not gonna be more catholic than the pope.’

Table 8.1 Scores matching Productivity/Compliance based configuration Productivity/Compliance A B C Design 55% 60% 65% Selection 73% 33% 27% Training 80% 73% 70% Appraisal 100% 72% 80% Rewards 71% 100% 87% Total match 75,8% 67,6% 65,8%

Table 8.2 Scores matching Commitment/Collaborative based configuration Commitment/Collaborative

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31 Design 63% 65% 78% Selection 63% 77% 77% Training 83% 50% 83% Appraisal 87% 73% 90% Rewards 47% 44% 63% Total match 68,6% 61,8% 78,2%

4.2.4 The MBF. While each interviewee shows a slight trend towards either configuration, it can be confirmed the MBF would be ‘stuck in the middle’ regarding its choice for an HR configuration. No clear match with either configuration can be found and the interviewed organizations seem to use practices from different sources matching different configurations. Interviewees seemed to be cherry-picking of both the ‘best practices’ provided by the franchisor, and the practices they deemed best for their units themselves. Cherry-picking from the practices as provided by different franchisors or industry-associations was however less used. The superiority of the practices as provided by the supermarket, which was the biggest franchise brand exploited by the interviewees, was acknowledged and used by all three organizations.

4.3 The relation of the variables

Specifically regarding the MBF organizational structure, respondents were asked about their cross-functional use of both employees and HR practices. Surprisingly, all were said to be quite low. The HR practices provided by the supermarket were partially used in other formulas, as they were further developed and more specific, but no expertise from these other formulas went the other way around. It was stated one first had to adhere to the collective bargaining agreements (CBA) and then employees from different units required different training and certificates for the tasks they performed. This would similarly explain the lack of cross-functional use of their employees and expertise. Managers might be transferred from one unit to another, but no simultaneous employment in multiple units was used, even if they were geographically very close. One respondent replied: “That would be very impractical.” While this cross-use of practices and employees could not be confirmed, it seemed however evident that the organizational characteristics of the MBF (Unit HR operational autonomy, Incentives for local adaption at unit level, Degree of control and monitoring on HR activities at the unit level, Resource availability and economies of scale, and Heterogeneity of activities) led to a lack of a clear choice for either HR configuration. So based on the results presented in section 4.2, the following proposition was formulated:

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Moreover, interviewees were asked open questions regarding the specific structural nature of their organization and how they were using this. Evident was the influence of the supermarket units in their organization on the use of HR practices. As has been noted before, the different formulas provided second level management to a varying extend with HR practices. Ranging from few guidelines provided by an association of tobacco stores, to far developed, ready to use tools for training and appraisal by the the supermarket chain. Mostly, second level management first took a close look at what tools could be used and matched their own vision, and then the practices were thankfully adopted. As one interviewee replied: “They have a lot of examples so why would you come

up with your own bad version if you have a perfectly good example. (…) They hire people to develop these so why not use it?” Still, they had a lot of freedom shaping their own particular practices and

tools and unit managers were granted high levels of freedom for their HR operations. So the core unit significantly influenced, but did not determine the final HR configuration, leading to the following proposition:

Proposition 2: A clear core unit within the MBF significantly influences the HR configuration.

In the interviews, the strategy of the organization came up as to why one would manage an MBF in the first place. Interestingly the thought behind the structure varied significantly. Explaining its philosophy regarding the MBF, organization A stated: “Originally the thought was that reducing

the display of one product group would give room for another. Take for example cosmetics. When you can display these in a store nearby, you can optimize the display of other products (…) The philosophy is to create the strongest shopping street” In other words, they used their different units operating in

multiple formulas in the same street to be each other’s complements. Following this philosophy their units even took into account the goods and services the competition would offer in the same street. This was a strategy to assure the continuation of the success of the shopping streets. In the case of organization B however, the strategy predominantly matched that of the MUFL, creating economies of