Trust and Control in Franchise Relations:
A study on how trust and autonomy affect the
perception of control in the franchise system from a
franchisee perspective
Willemijn Doornbos S2776375 22-06-2020
First supervisor thesis: dr. K.M. Bijlsma-Frankema Second Supervisor thesis: dr. E.P.M. Croonen
Word count: 14545 Dissertation Master Thesis
2
Abstract
In a franchise relation, the discrepancy in priorities of the franchisor – who wants to exert control in order to protect its formula – and franchisees – who desire autonomy – is a possible cause for tension between autonomy and control in the relationship. Though previous research was conducted on franchisor perspective, the perception of control from the franchisees’ perspective is an understudied field. Building on existing recommendations concerning future research directions, this study asks how franchisees perceive and respond – according to Hirschman’s EVLN model – to control actions that are exerted by the franchisor, and how trust and autonomy affect these perceptions and responses. Eight interviews were conducted and the data were analyzed following a three-level analyzation model. Analysis of the data demonstrated that formal control in general is not perceived as detrimental, but when negatively affecting franchisees’ personal control, they are likely to perceive the control as being detrimental. Low trust negatively affects the perception of control. When control is perceived as detrimental and trust in the franchisor is low, franchisees are likely to show destructive behavioral responses. Further research is recommended on the resources of Personal Control and factors that motivate employees to show constructive behavioral responses while they are expected to show destructive behavioral responses.
3
1 Introduction
The franchise relationship is a contractual bond which allows franchisees to use a franchisor’s trademark and the operating system. Joining a franchise relationship is a way for the franchisee to get into a successful business system (Chanut & Panché, 2011).
Stanworth and Kaufmann (1996) show in their study that principally franchises attract a great number of prospective franchisees with direct or past experience of being self-employed. This likely is due to the fact that franchisees in general are often entrepreneurial in nature and desire a sense of autonomy (Paik & Choi, 2007). Self-Determination Theory posits that individuals have a common psychological need for autonomy (Moller & Deci, 2009), which explains why franchisees that already have a preference for self-employment, value independency and are therefore eager for autonomy in the operations in their franchise stores (Dant & Gundlach, 1998).
The franchisor on the other hand, takes a risk by entrusting the brand name and the operating systems to independent franchisees, who are likely to differ in terms of expertise and the ability to adequately represent the brand. Hence, the franchisor wants to have a certain degree of control over franchisees, due to the risk of opportunistic behavior or inadequate representation of the brand by franchisees (Akremi, Mignonac & Perrigot, 2010; Paik & Choi, 2007).
4
This type of control is expected to positively affect the franchisees’ perception of control, because the franchisee gets more autonomy and experiences more trust from the franchisor.
The discrepancy in priorities between the franchisor (who wants to exert control in order to protect the franchise) and the franchisee (who naturally desires autonomy) is a possible cause for tension between autonomy and control within the franchise relationship. When franchisees do not experience the desired degree of autonomy due to organizational control, they are likely to experience a feeling of job dissatisfaction because they cannot operate in the way they want (Mellewigt et al., 2011).
When organizational members are dissatisfied with their job, they use a strategic communication response to express their dissatisfaction (Hirschman, 1970). A model widely used to explain individual responses to job dissatisfaction is the ‘Exit, Voice, Loyalty, Neglect’ model, created by Hirschman (1978). Among the behavioral responses, a distinction can be made between constructive and destructive responses. Responses to dissatisfaction are considered constructive when the intention is to increase or regain job satisfaction (Farrel, 1983). When organizational members no longer believe that improvement of the situation is possible, when they feel unheard or unable to make a difference, responses to job dissatisfaction will be destructive (Vangel, 2011). If franchisees develop destructive responses, this will be costly for the franchisor in terms of time and money to get them back on board, if not even having to let them go.
5
the controllees (Costa & Bijlsma-Frankema, 2007). Trust in the relationship results in open communication, information exchange, commitment and higher levels of cooperation and performance (Bijlsma-Frankema & Costa, 2005), thereby reducing the risk of job dissatisfaction amongst employees. When there is a lack of trust, the acceptance of control mechanisms amongst employees is hindered (Costa & Bijlsma-Frankema, 2007).
Franchising as a business strategy to grow has emerged in recent years, and the relationship between the franchisor and the franchisee received growing attention in the literature (Croonen & Brand, 2015). However, in the academic franchising literature, limited attention was paid to the franchisee perspective (Pizanti & Lerner, 2003; Grünhagen & Mittelsteadt, 2005; Akremi et al. 2010). Akremi et al. (2010) have researched opportunistic behavior in franchise chains, and in their study they focus on how cohesion is perceived by the franchisor. The authors suggest that further research should study the intentions of franchisees that act deviating from chain standards. This study builds on Akremi et al.’s study and contributes to the current literature by focusing on franchisee perspective and behavior. This study researches how franchisees perceive- and respond to control, and how trust and autonomy affect this perception of- and response to control. Hirschman’s EVLN model will be followed in order to categorize and analyze the behavioral responses. Based on this focus, the following research questions have been formulated:
1) How do franchisees perceive control actions of the franchisor and why?
a. Does autonomy play a part in these perceptions, and if so, how?
2) How do franchisees react to control actions of the franchisor and why do they react as
they do?
6
The following conceptual model visualizes the relationships this study aims to clarify:
Figure 1: Conceptual model
7
2 Theoretical framework
The Franchise RelationshipThe franchise relationship can be defined as a contractual bond made between a franchisor and a franchisee (Chanut & Panché, 2011). This relationship is governed by a contract or franchise agreement. The franchisee is licensed by the franchisor to use its trademark and the operating system. For the franchisee, joining a franchise relationship is a way to access a successful business system. Both parties involved in this agreement are obliged to follow the rules of the contract.
Control issues are a common problem in franchise relationships (Kashyap, Antia, & Frazier, 2012). Franchisors entrust their brand and operating systems to independent franchisees, who are likely to differ in terms of expertise, motivations and ability to competently represent the brand. According to Paik and Choi (2007), the risk of having franchisees inadequately representing the brand is one of the reasons why franchisors are eager to have a certain degree of control over franchisees.
8
Need for autonomy and Self-Determination Theory
Self-Determination Theory (SDT) posits that all individuals have a common psychological need for autonomy (Moller & Deci, 2009). According to SDT, one is self-determined when his actions are autonomous, voluntary and fully backed by the individual rather than coerced by an external force (Knee, Hadden, Porter & Rodriguez, 2013). To become self-determined, there are at least three universal psychological needs that have to be fulfilled, being: the need for competence, the need for relatedness and the need for autonomy (Lange, Kruglanski & Higgins, 2012). When these needs are met, it fosters the individual’s intrinsic motivation and engagement in activities.
9
From an SDT perspective, autonomy is defined as “a subjective experience, characterized by feeling free and by endorsing one’s actions” (Moller & Deci, 2009: 42). An individual experiences the feeling of autonomy when feeling free of interpersonal coercion. According to SDT, people experience greater psychological and physical well-being and are therefore happier and healthier when they have a feeling of autonomy. The need for autonomy can be thwarted by attempts of other people to pressure, manipulate or otherwise influence one’s will. When the need for autonomy is frustrated, this leads to a feeling of pressure and coercion by the individual (Costa et al., 2018).
When looking at SDT and in particular the need for autonomy, it is interesting for this study to see how it relates to franchising. According to Stanworth and Kaufmann (1996), generally the charm of franchising attracted a great amount of prospective franchisees with direct or past experience of being self-employed. Individuals that prefer self-employment in general value independency and therefore are likely to show a desire for autonomy in the operations of their franchise stores (Dant & Gundlach, 1998). Franchisee autonomy is defined as ‘… the franchisee’s capacity to control his own activities of store management, to adapt them to the local zone and to take initiatives within the framework of the franchise contract’ (Colla, Ruiz-Molina, de Gery, Schultz, Deparis & Lemmet, 2018: 735). The feeling of pressure and coercion caused by a frustrated need for autonomy may affect the franchisee in how he reacts to unpleasant situations.
10
Trust and Control
Trust. In the past decades, trust has progressively been acknowledged as an important factor in inter-organizational relationships (Bijlsma-Frankema & Costa, 2005). In their study, Mayer, Davis and Schoorman (1995: 712) propose the following definition of trust: “the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party”. This definition is similar to the definition of Gambetta (1988), who defined trust as “the expectation that another’s action will be beneficial rather than harmful”, but it takes into account the factor vulnerability (Mayer et al., 1995).
Trust is not static, and once given to others it can increase or decrease. How trust evolves involves reciprocal expectations. When the trusted other lives up to expectations, trust increases. When the trusted other violates the expectation, trust decreases (Bijlsma-Frankema & Costa, 2005). It is valuable to build trust in a relationship, since positive consequences of trust include open communication, information exchange, commitment and positive outcomes such as high levels of cooperation and performance. However, when there is distrust in the relationship it creates discord. This is due to the fact that in case of distrust, the actor tends to dislike what the other likes, tends to avoid interaction where possible, and tends to not share relevant information (Bijslma-Frankema & Costa, 2005).
11
Davis & Schoorman, 1995: 718). Benevolence can be seen as the perception that the trustee wants to do good and be helpful, without the need for an extrinsic reward. Finally, the factor integrity is defined as “… that the trustee adheres to a set of principles that the trustor finds acceptable” (Mayer, Davis & Schoorman, 1995: 719). Affecting the trustworthiness is the perceived level of integrity by the trustor, rather than the reasons why the perception is formed. If one or more of these three factors is missing, it negatively affects trust.
Control. Control is the process that regulates the behavior of organizational members in order to achieve the objectives of the organization (Costa & Bijlsma-Frankema, 2007). Control literature makes a distinction between two approaches to control, namely formal control and informal control. Formal control is by Bijlsma-Frankema and Costa (2005: 259) described as aiming at “establishing task reliability by designing a set of rules that specify an actor’s work and enforcing the actor’s compliance with these prescribed standards”. Formal control comprises setting standard formal rules, policies, procedures, expected outcomes, monitoring compliance, and feedback to the controllee (rewards, sanctions). Informal control, also known as social control, focuses more on the regulatory power of organizational culture, values and the internalization of objectives to encourage desirable outcomes (Costa & Bijlsma-Frankema, 2007). Formal control, as well as trust, requires agreement of participants in the control relation about expectations, since a lack of alignment in expectations creates room for misunderstanding and –interpretation of well-intended actions of the other, which can lead to a decline of trust (Bijlsma-Frankema & Costa, 2005).
12
distinguish between two types of control in the franchise relationship, namely outcome control mechanisms and behavior control mechanisms. Outcome control mechanisms specify results that have to be achieved by franchisees. The franchisees are not given specific tasks on how to get to these results, instead they are free to act within certain boundaries to reach them. Outcome controls that include stimuli that motivate franchisees to pursue the franchisor’s objectives without restricting the autonomy are convenient to increase franchisee satisfaction. Behavior control mechanisms include formalized procedures, rules and regulations that are used to monitor whether actual behaviors correspond to pre-specified behaviors. The authors argue that, since franchisees that run a store within a franchise system are likely to have higher propensity to take risks, strong behavioral control is expected to negatively affect franchisees’ job satisfaction, because they will feel constrained in their behavior. For the entrepreneurially thinking franchisees, the behavior control mechanisms may feel restricting (Mellewigt et al., 2011).
Franchisees relatively benefit more from franchisor guidance and knowledge when they are new to a franchise. Once franchisees get more experienced, the need for support from the franchisor decreases, since experienced franchisees can realistically asses what actions are required in order to be successful in their business. Consequently, experienced franchisees develop their own attitudes towards support quality and it may deviate from the franchisor’s specifications, which can in some cases lead to franchisees questioning the franchisor’s value and expertise (Mellewigt et al., 2011). Therefore, especially amongst experienced franchisees, the use of outcome control mechanisms that emphasize the entrepreneurial autonomy may be desired compared to behavior control mechanisms, that tends to direct the franchisees’ way to fulfill tasks.
13
that he or she can bring about good events and avoid bad events” (Peterson & Stunkard, 1989: 819). In their study, Greenberger, Porter, Miceli and Strasser (1991) propose that stress, low job satisfaction and low performance are often associated with lowered personal control, leading to a desire amongst the organizational members for more control. In addition, significant changes within the organization, creating uncertainty, unpredictability and turmoil for the organizational members undermine their perception of personal control. If the organization decreases opportunities for control, most members of the organization will take action in an attempt to achieve more control or to restore the loss of control before becoming helpless or silent (Greenberger et al. 1991).
In their study, Landau et al. (2015) elaborate on restoring personal control. They explain that personal control derives primarily from personal agency which they define as “beliefs that one possesses the resources necessary to perform a behavior or set of behaviors required to produce certain outcomes or achieve certain ends” (Landau et al., 2015: 695). The resources mentioned comprise skills, know-how and other capabilities that create the opportunity to initiate action in the pursuit of personal objectives. Ergo, when confronted with situations that reduce personal control, employees will try to bring back their personal control to a better level by strengthening their personal stock of resources. When the individual is not able to strengthen the resources by him/herself, another strategy to restore resources mentioned by the authors is bolstering external agency, “… which involves relying on a system outside of the self as a locus of resources that can influence personally relevant outcomes and improve one’s chances for achieving certain ends” (Landau et al., 2015: 696). The system on which the individual relies on decides which outcomes are in the best interest of the employee and will then provide for those resources necessary to obtain these outcomes.
14
can affect the responses of the franchisee to unpleasant situations. The franchisor uses control mechanisms to direct and motivate the franchisee to meet the performance standards of the formula (Long & Sitkin, 2018). Trust is an important factor in the relationship, since organizational control requires the franchisee to concede parts of their autonomy to the franchisor. Control from the franchisor on the other hand can compromise trust in a way that it jeopardizes the franchisee’s sense of self-determination and promotes a feeling that the franchisor is acting in their own best interest (Long & Sitkin, 2018). Trust in general reduces the franchisor’s perception of relational risk and therefore the need to control the network relationship (Hendrikse, Hippmann & Windsperger, 2015).
When looking at how trust and control are related and how they affect one another, it is a complex relation and previous studies show different and contradicting interpretations on how the two are related. There are two main perspectives on the relation between trust and control: the substitution perspective and the complementary perspective (Costa & Bijlsma-Frankema, 2007). The substitution perspective conceptualizes trust and control as two opposing alternatives, meaning that low trust in the controller asks for more formal control and high trust gives room for a lower degree of formal control. Trust provides incentives for cooperation, it reduces uncertainty and increases information exchange (Costa & Bijlsma-Frankema, 2007). Hence, the higher the level of trust in a relationship, the lower the costs of control mechanisms can be. The complementary perspective argues that trust and control can be mutually reinforcing. Strictly formal control mechanisms are considered a tool to enhance trust, since clear rules may assist the organizational members in evaluating and assessing the work of others. Formal rules to follow are a much more predictable and continuous factor than trust is, especially in dynamic organizations (Costa & Bijlsma-Frankema, 2007).
15
1998). The complements perspective argues that control mechanisms become more effective when trust is involved, since trust reduces the level of resistance and increases the level of vulnerability the controllee is willing to accept, thus making the relationship between the controller and the controllee more harmonious. A lack of trust hinders the acceptance of both outcome control mechanisms and behavior control mechanisms (Costa & Bijlsma-Frankema, 2007).
Tension between trust and control within a franchise relationship may be sometimes inevitable, due to a difference in interests and priorities between the franchisor and franchisees. Understanding the ratio of control and autonomy in this relationship will help the researcher understand why franchisees decide to respond in a certain way.
Exit, Voice, Loyalty, Neglect
16
amongst employees is positively related to organizational commitment, to good relationships between employees and managers and to trust in senior management (Farndale, van Ruiten, Kelliher & Hope-Hailey, 2011). Farndale et al. (2011) found that higher levels of organizational commitment exist when employees feel they have an impact on organizational decision-making, encouraging them to voice their complaints.
The Exit, Voice, Loyalty, Neglect (EVLN) model was built on this contrariety in responses, and is grounded in the observation that job dissatisfaction influences employee behavior, affecting the employee extrinsically as well as intrinsically (Rajiani & Buyong, 2013). Next to the two main ways to respond, Hirschman (1970) suggests loyalty as a third category, where employees “suffer in silence, confident that things will soon get better” (Hirschman, 1970: 38). Loyalty as a response means that employees neither exit nor voice, but instead decide to stick with the organization for a period before reacting, expecting that things will improve. The fourth and final way of responding is neglect, which was first introduced by Rusbult, Zembrodt and Gunn (1982) in their study of romantic involvements. This has since been widely accepted in the literature as a fourth way of responding to dissatisfaction, and stands for lax and careless behavior amongst employees, often leading to absenteeism and reduced effort (Rajiani & Buyong, 2013). Neglect is defined by Rusbult, Farrel, Rogers and Mainous (1988: 601) as “passively allowing conditions to deteriorate through reduced interest or effort, chronic lateness or absences, using company time for personal business or increased error rate”.
17
used trying to improve the situation and recreate a satisfactory relationship (Si, Wei & Li, 2008). Voice alerts management to dissatisfaction and loyalty is a sign that employees see possibilities for improvement, hence the constructive nature of these responses. Exit and neglect generally have been typified as destructive, because employees using these responses no longer see potential in the organization and they have decided that the relationship is not worth maintaining (Si, Wei & Li, 2008).
According to Hirschman (1970), an important factor affecting whether an employee shows exit behavior is organizational commitment. In their study, Mellahi, Budhwar and Baibing (2010) expand on this phenomenon by focusing on two types of organizational commitment and how they affect an individual’s response to dissatisfaction. The first type of organizational commitment is calculative commitment, which suggests that “… when employees have no viable or desirable alternative outside their organization, or when cost of exit far outweighs the benefits of staying, employees are less likely to leave the organization” (Mellahi et al., 2010: 352). Calculative commitment “makes exiting less likely” (Hirschman, 1970: 77) due to a lack of better options outside the organization. The second type of organizational commitment is attitudinal commitment, which refers to “… the relative strength of an individual’s identification with and involvement in a particular organization” (Mellahi et al., 2010: 352). Individuals are attitudinal committed to an organization when they feel emotional attached and experience a sense of obligation and desire to stay and help the organization improve.
18
associated with employee tendencies toward exit behaviors, and exit behavior is related to behaviors such as intending to quit, quitting, transferring, lateness, absence and increased error rate (Rusbult et al., 1988).
In this study, responses of the franchisees towards the franchisor, affected by inter-organizational trust and control, will be classified according to this EVLN model.
3 Methodology
For this study, the choice was made to conduct a qualitative research. This methodology chapter will describe how this research was set up. First, the data collection method is provided and secondly, the data analysis strategy is given.
Data collection
19
transcribed verbatim. The interview guide used in the non-directive interviews can be found in appendix 1.
Besides the interviews, desk research was conducted to find studies that could be helpful in getting a better understanding of the data that was collected during the interviews. Second, the theories studied were later compared to the data in order to get to a theory that will help answering the research questions of this study.
Data analysis
Sunday (2008) defines qualitative data analysis as ‘…the range of processes and procedures whereby we move from the qualitative data that have been collected into some form of explanation, understanding or interpretation of the people and situations we are investigating’. To ensure that no information would get lost, the conducted interviews were taped and during the interview field notes were made. The field notes contribute to the tape because they include observed emotions and informal conversations that happened before or after the interview.
20
regarding autonomy and control relations to support the researcher in theoretically understanding and explaining the qualitative data.
To analyze the gathered data, this study again followed Bijlsma-Frankema et al. (2015) and followed a three-level model proposed by Lee (1991) and Schutz (1972). In the first phase of the data analysis, data from each interview were transcribed verbatim and thus in the language of the respondents. In the second phase, the retrieved data was coded and categorized into broad second-order categories. The first step of the second phase was open coding, where the answers of the respondents were put into a data matrix that categorized answers in broad themes, following the topics of the interview guide. After this, themes and answers were categorized under the headings of an axial coding table. The purpose of the axial coding table is to organize and reduce the labels. After organizing the labels, the researcher has created core labels and searches for interrelationships between labels. The following core labels were created: Expectations, Control, Autonomy, Trust and Response.
21
4 Results
In this Result chapter, the collected data will be described and analyzed. First, a descriptive analysis of the data is presented. The descriptive analysis was conducted following the same structure as the interview, which is per theme. The parts discussed in the interview were the following: General questions, Relations with other franchisees, Relation with the franchisor and finally changes in the board in the past decade. Following this order, the answers of the respondents are addressed in the descriptive analysis. The second part of this chapter consists of an analysis of the data. Close attention is given to the why questions because these help the researcher to understand data by applying theoretical ideas to the answers retrieved from the interviews.
4.1 Description of the data
The primary purpose of this study was to understand the responses franchisees show and why they show these responses. In this part, a description of the data retrieved from the interviews is given. The interviews were conducted in Dutch, and therefore citations mentioned in this chapter are loosely translated from Dutch to English.
Part I: General
22
Formula A (6 respondents): In formula A, formal control by the franchisor is exerted in
three ways. The first form of control is through written rules in the form of a contract. The second form is by having insight in the cash-register system and administration of franchisees. The third form of control is through the area-managers that are assigned to each store. These area-managers operate on behalf of the franchisor and visit the franchisees to give advice and to control whether the store is operating as wished. A lot of changes, initiated by the franchisor, took place in the past decade in formula A. The board of directors has changed frequently, and on average every two years a new managing director was hired, which automatically led to many different directions over the past decade in terms of strategy and business concepts of formula A. With most of the changes in the board came along changes in the rest of the personnel, including amongst the area managers. Because of this, the franchisees have seen a lot of area managers come and go: some of them got assigned eight different area managers over the past eight years. The impression is that the respondents in this formula perceive the area managers as an extension of the headquarters, and not so much as someone who is there to support them and to help them get the best out of their store, which in this case is perceived as not representing the same intention.
Formula B (1 respondent): In formula B, formal control exerted by the franchisor is
23
the respondent has not experienced any consequences of that yet. Apart from that, there have not been many changes in the managerial board that affected the respondent.
Formula C (1 respondent): In formula C, which is an international formula, control is
exerted by a country manager. The country manager is responsible for visiting franchise stores in a country to check if each store delivers according to formula standards and depicts the corporate identity. Besides, there is a handbook that in combination with the contract, states written rules that have to be followed by the franchisees. The respondent has negligible contact with the international headquarters, but frequent and good contact with the country manager. There have been no changes in the managerial board of the franchise in the past decade that affected the respondent in a worth mentioning way.
Expectations at the start of the franchise relation, fulfilled and unfulfilled. The data revealed that the most important expectations of the respondents were support and structure. Answers such as “Support. Simply support on all areas” and “I expected to get more support
in getting all organized accountancy in order” are examples of this. Another important
expectation that has been mentioned by some respondents was that the brand name of the formula would positively affect the success of their store. Besides these expectations, there were also a few respondents that did not have any specific expectations of the franchisor before getting in the franchise relationship.
24
support was lacking was the quality of the support offered by the franchisor. As mentioned before, many changes happened on the managerial board of formula A, which has led to a decrease in trust from the franchisees in the qualities and competencies of the franchisor.
This decrease in trust happened partly because the respondents of formula A have seen many different area managers that got assigned to them, and each time the franchisees had to explain and teach the area managers the tricks of the trade. The franchisees felt that the meetings with area managers were a waste of time, because the franchisee and his store did not get anything out of it, since the area manager did not have the knowledge and capabilities they expected an area manager to have. The area managers were seen as unable to give good advice and new insight to franchisees because they were not capable enough and did not have the same or more experience with the industry and the formula as did the franchisees. Some of the respondents in formula A seem to have reached their limit in dealing with the changes and the new people on headquarters. To the question if his expectations were met, one respondent of formula A replied with “In terms of product range, yes. In terms of the managing board and
support, no. I had to deal with so many assholes in the purchasing department. I am sick and tired of it.”. His response shows clear signs of frustration about the many different employees
at the headquarters and the way he experiences support from the franchisor.
Financial success and failure factors. The respondents were quite likeminded about the financial success factors of their store. Most respondents claim that customer service is the most important thing for financial success. One respondent said “Being customer focused. The
most important thing is to get to know your customer”. Knowing your customer is important to
25
have new products that are part of a hype in store: “We are very dependent on the books that
are published and whether and how quickly we have them in our store”.
Failure factors are different for the different formulas. For formula A, the biggest threat is the internet. “A big threat is that people can order products for a low price online, and a lot
of people don’t know they can also do that in the store with us, for the same price”. Ordering
online has become very popular over the past decade and due to online shopping there has been a diminution of traffic in shopping areas. The second failure factor for franchisees in formula A is the deteriorating relationship with the franchisor. It complicates collaboration and creates distance between the franchisee and franchisor.
According to the respondent from formula B, issues with the check-out computer system, such as malfunction or failure to work of the ATM, are a threat for the financial success of the store. For the respondent from formula C the rental prices of his shop at a primal location is a threat to his financial success.
Part II: Relations with other franchisees
26
to good experiences and a similar work ethic and view on the franchise relationship. They still share tips and tricks on the shared page, but do not collaborate or communicate closely with everyone.
In formula B, there is also frequent contact between colleague franchisees. Most of this contact happens over the phone or at meetings of the formula, where all franchisees come together. The respondent collaborates and communicates with colleagues that have a similar work ethic as he does, and he avoids colleagues that are negative.
In formula C, there is negligible contact between the respondent and colleague franchisees, mainly due to the fact that there are no stores located in close proximity of the respondent.
Influence on success and failure of the firm. According to the respondents, the primary way in which colleague franchisees can have a positive influence on each other is by giving each other tips and tricks and advice on where to get a good deal or how to improve operations. Examples given by the respondents are: “We discuss things and buy together to get
better deals”, “I once made an instruction video on how to properly dissemble and clean a
cooler, which I sent to the others” and “If something is running smoothly at a colleagues’ store,
you copy his way of doing it”.
On how they could negatively affect each other, almost all respondents from formula A agreed that the shared Facebook group plays a big part. One respondent explained the risk of the Facebook group as follows: “The risk of this group is that someone can undermine the mood
of others. It can hurt the mutual feeling, the feeling of solidarity”. In general, all respondents
27
fights started happening and at some point it got at such a low point, that I had decided to get out of the group”. The negativity could get the overhand and could even hinder the use of each
other’s strong points. Several respondents said that the Facebook group negatively affected their mood and made it difficult to stay positive and operate at their best. The two respondents from formula B and formula C did not experience any negative influences from colleague franchisees.
Trust in other franchisees. As mentioned before, on the Facebook page of formula A there would sometimes be personal arguments or fights and a lot of negativity. This led to mutual irritations which could create negativity amongst the franchisees, which was not enhancing the sense of reciprocal trust, especially on a personal level.
However, in general the respondents have a feeling of mutual trust with their colleague franchisees, but primarily in a business matter, as one respondent explained: “If I need books,
I get them from one of my colleagues. I come pick them up and I pay them on account. So in that matter there is trust”. Another respondent said “I wish my colleagues good business. Do I
trust them all? Hell no. Trust can also be in a way that you can trust someone in how they will
respond, being in a way that you expect them to”. Another respondent based his trust in
colleagues on experiences, saying “I trust most, but mainly because of the experiences that I
have had with them. If those have been good, I know I can count on them”. From these answers
28
Part III: Relation with franchisor
Relevance of the relation. Each respondent was clear about the fact that the relation with the franchisor is of relevance. Especially when you are new to the formula, according to two respondents who said “they have a facilitating role that you need” and “In the beginning
you have to get to know everything and for that you need them. But after a while you know how to do it and you think ‘God, what value exactly does this franchisor add for me’?”.
The other respondents thought the relation is important because the franchisor and franchisee both need each other. “They make central arrangements with manufacturers and
suppliers, and we sell the products. In that sense you need each other” and “If they don’t have
their house in order, this can be seen in the stores” are answers that clarify how the franchisor
affects the stores explaining the relevance of the relation.
Franchisor rules and contract. The main way in which the franchisor has insight in the actions of the franchisees is through the cash-register system. Every store works with the same automated system in which the franchisor has full insight. Except for one respondent, who said “It is just one step away from having a camera on me all day”, the other respondents did not experience this way of control as negative or suppressing. The respondents understood that a certain amount of control is necessary in order to protect the formula and its franchisees from the risk of opportunistic behavior of franchisees. Also, analyzing the cash-register system could improve the accuracy of purchasing. Besides the automated cash-register system, sometimes an area-manager visits the stores to have a look around and talk to the owner. Again, the franchisees did not consider this as a suppressing way of control from the franchisor, and as one respondent said: “The area-managers come by to look in the store sometimes, but they are
29
Trust in franchisor. The main answer that was given to the question whether or not the franchisee had trust in the franchisor was no. A few respondents said they trust the franchisor up until a certain point, and that it is more of a marriage of convenience, which is not a clear sign of mistrust, but also cannot be considered as trust. One of the respondents said “the trust
is pragmatic. I trust them for as far as I can see, but nothing more”. Most of the respondents
of formula A were very clear cut about their lack of trust in the franchisor. Bold responses like
“very, very low” and “I would really like to say yes, but unfortunately the answer is no” show
that there is no doubt about a general lack of trust in the franchisor. The respondent from formula B said to trust the franchisor to a certain extent, because they recently merged with another formula and he wants to see how this relationship will develop before he puts his full trust in the merged headquarters. The respondent from formula C said to trust the products of his formula, but that he does not really care about the franchisor since he is not dealing with them much.
Trusted by franchisor. The responses to the question whether the franchisee thought the franchisor trusted them were varying. Two respondents thought the franchisor trusted them. One of them said “I think so. If they did not, the area-manager would come by more often”. The other respondents did not feel like they could speak of trust. One of the respondents was quite negative, saying “The franchisor thinks we are wining. If I have a problem I send them
an email, but I just get no reply. So we are not in this together, no”.
30
In formula A, the franchisees experienced a lot of actions displayed by the franchisor as being unpleasant. According to multiple respondents, the franchisor does not respond quickly and adequately enough to problems faced and reported by franchisees. A lot of mistakes were made with orders, prices, promotions, marketing or in-house communication. When the franchisees mentioned this, or wanted to know when the problem would be solved, the common answer would be “we are working on it”. This was frustrating to the franchisees because it gave them the impression that the franchisor was incapable of fixing problems efficiently and trying to blow them off.
Another common problem faced by multiple respondents in formula A, is that the franchisor tends to twist the franchisee’s words or does not live up to agreements. This leaves the franchisees with a feeling of not being taken seriously, and one respondent even mentioned that he felt like he was being played. This clearly negatively affected the trust of the franchisees in the franchisor.
Finally, a big problem for the franchisees was the number and quality of area-managers that they get assigned. Most of the respondents currently refuse to welcome or meet with the area-managers unless they are employed at the formula for at least a year. The area-managers hired by the franchisor do not have the required knowledge or experience to give relevant advice or feedback. This was unpleasant according to the respondents, because they did not feel taken seriously when being checked by someone that has less knowledge about running a business or the industry than they do themselves. Besides that, meetings with the area-manager were considered a waste of time because the franchisees needed the whole meeting to explain the tricks of the trade while not getting anything worthwhile out of the meeting himself.
31
respondents over time changed their behavior from positive to negative reactions. They felt like there was no point in their primary positive way of responding, because they feel unheard when complaining about unpleasant aspects to the franchisor. Some citations from interviews that describe this change in behavior towards the franchisor are: “I don’t even address issues
anymore, I am mostly trying to let go”, “In the beginning you mention your problems, but at a
certain point you stop doing that. Then it is time to have a different conversation, one where you discuss breach of contract” and “I have been negative for a very long time, and also very
angry. At a certain moment in time I decided to take a step back”. One of the respondents
seemed to have had enough of the cooperation with the franchisor and said that actions of the franchisor has led him to consider leaving the formula, in order to “jump on another boat when
the chance arises”.
The other half of the respondents in formula A deals differently with unpleasant aspects in the relation with the franchisor. They still voice their complaints, even though they are unsure about the effect it will have. These respondents have experienced similar unpleasant actions of the franchisor, but they do not want to stay silent about them. A few of the responses they gave were: “I send them an email. First to the area-manager, and if I don’t get the response that I
want, I email directly to the director” and “Everything should be talked about openly. I am
always open and transparent towards them about my complaints”. The respondents showed
different behavior, but in general the actions of the franchisor are the same to both groups of respondents: “we are working on it”.
Part IV: Changes in the board in past decade
32
the formula in the right direction, and with that the managing board and the rest of the staff changed frequently. Formula B recently decided to merge with another formula in the industry, but the managing board has been relatively stable. In formula C, there have been no significant changes in the board in the past decade.
Positive and negative aspects of changes. The respondent of formula B, who has not experienced many changes in the managing board, perceived the merge with another formula as positive since this led the franchisor to wanting more insight in the franchisees’ administration, “making it more easy for me to find back things about my business”.
Most of the respondents of formula A had difficulties coming up with positive consequences of the frequent changes in the board in the past decade. This led to four respondents answering not being able to think of a positive aspect of past changes, none in their words. Two of the respondents gave no as an answer and one of them elaborated to explain why his answer was no, saying “they have blundered and missed out on hypes that could have been
beneficial for the stores”. The changes in the board have led to turmoil at the headquarters,
shifting the focus from being on top of hypes and customer demand to trying to, but failing in creating a consistent business strategy. The other respondent gave a clear explanation of this negative consequence of the frequent changes, saying “Having a different strategy and concept
with every new director is difficult. It restrains the formula in building a consistent and strong concept”.
33
qualities and competencies of the people working on the headquarters, representing the franchisor.
Influence on trust and behavior towards franchisor. In general, the changes in the board have affected the franchisees of formula A in their behavior towards the franchisor in two ways. Some respondents have decided to become more autonomous and seek less support from the franchisor. Some responses that reflect this effect are “I don’t seek for support anymore, I
do everything myself now”, “I became much more feisty. I don’t take anything from no one
anymore” and “You become an island. If I as an individual am doing good, I don’t care about
anyone else”. One respondent said the changes made him more assertive and therefore also
more autonomous: “At first I thought, if I act according to the rules, everything will be fine
because headquarter knows what they are doing. It turned out I was wrong and headquarters
did not know what they were doing. Then you have to start doing your own thing, and that is what I am doing right now”. These quotes tell us that these franchisees have lowered their
expectations of the franchisor and have more trust in their own knowledge and competencies than they have in the franchisor’s. Every respondent, when starting at the formula acted according to the formula guidelines and followed the advices given by the area managers. Most of the respondents, when losing their trust in the franchisor, decided to take matters in their own hands and started operating more autonomous, by denying meetings with the area manager and taking less support from the franchisor.
Other respondents became less outspoken as a result of these changes. Quotes that explain how their behavior changed to a more quiet side are “I haven’t changed my actions. I
just decided that it is a matter of becoming more stoic” and “I have always remained
professional, but I notice that I am a lot less happy and free than I used to be”.
34
and “… if everything would be running smooth and they knew what they were doing, I would
follow their procedures, but that is definitely not the case” are quotes that tell us that the
respondents do not trust the qualities of the people operating in the headquarters. This resulted in franchisees taking more matters into their own hands because they feel like they are better able to make good decisions about their store than someone from the managing board is.
However, besides the respondents that experienced a negative effect on their trust, one respondent who had been negative for a very long time was now more trusting of the future. With the latest new owner of formula A he said to be more positive because “… I now have
more confidence that our interests are the primary focus instead of their own”.
4.2 Analysis of the data
In this part of the chapter the retrieved data will be made understandable by applying theories and comparing the data to theoretical ideas. In analyzing the data, we will look at the factor trust (from franchisee in franchisor) and how it affects the franchisees’ evaluation of control and the way they respond to it. In the next part, analytical questions are asked and answered to help answer the research questions of this study.
Why is control by the franchisor sometimes perceived as beneficial, and sometimes as detrimental by franchisees?
35
Form of control Perception of control by Franchisees
Written rules and contract Beneficial
Cash register system (CR system) Beneficial
Area manager Detrimental
Table 1: Perception of different forms of control
When asked how they perceived control in the form of written rules and insight in the CR system, seven of the respondents said not to perceive it as being detrimental. For some franchisees control is even perceived as beneficial because they see it as a way to restrain other franchisees from possibly stealing money or acting maleficent. If the franchisee feels as if the control is used as a tool to help and support them rather than to harm them, the control is not perceived as being coerced by an external force (Knee et al., 2013). This is the case for control through written rules and the contract and control via the CR system.
Control via the area manager however is being perceived as detrimental. Franchisees are willing to give up parts of their autonomy to the franchisor, but they do want something in return. According to Personal Control Theory, people want to reach their personal goals and they want the resources they need for that (Landau et al., 2015). In the case of entrepreneurial franchisees, this means they aim to get a good revenue from their store and, according to the respondents, they need support of the franchisor and autonomy to get to this goal.
36
Control theory, is that the written rules and insight in the CR system could be considered a resource by the respondents, since the rules protect them from opportunistic behavior and insight in the CR system generally leads to more accurate purchasing and consistent availability of products. Therefore these forms of control are perceived as a resource that supports the franchisees to reach their personal goal, which is getting a good revenue from their stores. The area managers on the other hand are perceived as an extension of the franchisor, and are expected to offer a part of the support that the franchisees want from the franchisor. This support from both the franchisor and the area managers is lacking in the eyes of the respondents, and therefore the form of control through area managers is negatively evaluated and thus perceived detrimental.
Is the beneficial/detrimental perceived control related to trust in the franchisor, and if so, how?
37
Franchisees have a negative evaluation of control when they have to make concessions while not getting anything valuable in return. When there is low trust in the franchisor, this negatively affects the perception of control, since the franchisees have to hand over autonomy to a party that in their opinion is unable to deliver and act in the best interest of the franchisees. Thus, trust and control are related both ways: low trust negatively affects the perception of control, and the way control is exerted affects the perception of the factors ability, benevolence and integrity, that together are the basis of trust.
Do franchisees deal differently with control they perceive as beneficial than with control they perceive as detrimental, and if so, why?
38
The following table provides an overview of job (dis)satisfaction, shown behavioral responses and the level of trust related to it.
Formula of respondent
SEE’s level of trust
Job satisfaction SEE’s behavior (Exit, Voice, Loyalty, Neglect, Silence)
A (SEE1) Low Dissatisfied Exit, Neglect
A (SEE2) Low Dissatisfied Exit
A (SEE3) Low Dissatisfied Voice
A (SEE4) Moderate Satisfied Voice
A (SEE5) Low Dissatisfied Voice
A (SEE6) Moderate Satisfied Voice
B (SEE7) High Satisfied Voice
C (SEE8) High Satisfied -
Table 2: Overview of trust, job satisfaction and SEE’s behavior
When control is perceived beneficial, and franchisees trust their franchisor, it is expected that franchisees accept the control and are satisfied with it. They are not likely to complain about it, and if they do, the responses they show are expected to be constructive rather than destructive. This is the case in formula B and C, where the respondents are on good terms with the franchisor and communication is relatively easy.
39
40
5 Discussion
In this discussion chapter, the research questions will be answered. Furthermore, implications, directions for future research and the limitations of this research will be discussed. The first research question with sub-question was: How do franchisees perceive control actions
of the franchisor, and why? Do autonomy and/or trust play a part in these perceptions, and if
so, how?
The formulas studied exert control over their franchisees in three ways: via area managers, by having insight in the CR system and administration and finally through the contract. Area managers are a form of behavioral control mechanisms, insight in the CR system is a form of outcome control mechanisms and the contract has determined the rules and standards for each form of control.
Franchisees can perceive control exerted by the franchisor as being detrimental or beneficial. For franchisees, having autonomy is important for them to be self-determined and to experience personal control. When they have to hand over autonomy because the franchisor wants to exert control, this undermines their personal control. According to Personal Control Theory, if the franchisees get something valuable in return, such as strong support from the franchisor, it makes them more willing to hand over parts of their autonomy. In this case, the control actions of the franchisor would not be perceived as being detrimental. However, when the franchisees have to hand over autonomy while not getting any valuable resource such as strong support in return, control actions are perceived as being detrimental.
41
and stock. These forms of control could be considered resources that help the franchisees in getting a better revenue from their store.
However, the data retrieved from the respondents of formula A show that for the franchisor to be exerting control without offering the expected support to the franchisees, it negatively affects trust. This finding is supported by Personal Control Theory, that explains that franchisees are willing to hand over resources (autonomy), if they get resources in return (support from the franchisor and area managers) that will help them achieve their personal goals (good revenue). The control exerted through area managers in combination with lacking support from the headquarters and area managers resulted in low trust of the franchisees in formula A. Low trust in the franchisor negatively affects the perception of control actions. For the respondents of formula A, control exerted through the area managers is perceived as detrimental, because the franchisees expected to get better support from the area managers and the headquarters.
The second research question with sub-question of this study was: How do franchisees
react to control actions of the franchisor and why do they react as they do? Does trust in the
franchisor play a part in these reactions, and if so, how?
The results of this study show that franchisees can perceive control exerted by the franchisor as being detrimental or beneficial. When franchisees trust the franchisor, and are relatively satisfied with his actions, control actions are not likely to be perceived as being detrimental. If franchisees are satisfied with the situation, they do not show any destructive responses. If franchisees have low trust in their franchisor, and perceive an action as detrimental and thus are dissatisfied, they are most likely to show destructive responses.
42
organizational decision-making are higher, encouraging them to show constructive behavioral responses. In the case of low trust, the franchisees no longer see potential in the organization and often they decide that the relationship is not worth maintaining, resulting in destructive behavioral responses.
Franchisees can make a switch from constructive to destructive in their responses. If voice and loyalty do not lead to any improvements, after a period of time it is likely that the franchisees will show exit or neglect as a response, since their constructive responses did not have any effect.
Practical implications
The findings of this study lead us to some practical implications. Firstly, the results of this study confirm that both autonomy of the franchisee and trust in the franchisor affect the franchisees’ perception of control actions exerted by the franchisor. When looking at the conceptual model, how actions of the franchisor affect trust of the franchisees, and what these actions are exactly was yet to be determined. The analysis of the data indicates that the actions of the franchisor that would positively affect trust of the franchisees are: strong and adequate support, having a steady managerial board with a consistent concept and business strategy, and being trustworthy conform the ABI model. This finding can be of importance for franchisors that aim to create a trusting relationship with their franchisees.
43
maintaining, it becomes much more costly and time consuming to repair this than it is to listen when they still show constructive responses.
Limitations and Directions for future research
The findings of this study must be considered in the light of some limitations. First, regarding sampling, the number of respondents is eight, which is very limited. The findings of this study would be stronger and more reliable with more respondents. Second, the respondents of this study are active in three different formula’s, operating in two different industries. This has hindered the possibility to recognize patterns since each formula has a different franchisor, headquarters, history, and culture. It would have been better to conduct all interviews with respondents within one single formula. Nevertheless, within these limitations, this study’s findings contribute to the current literature by focusing on the franchisee perspective. The objective was to understand franchisees’ behavioral responses and what motivated them to respond in a certain way. This has not been done before in the current literature.
While the results of this study have shed a light on franchisees’ perception of control and the factors affecting this perception, much remains to be learnt about their perspectives. Lines of future research should include larger scale qualitative research, possibly through case studies, that looks deeper into franchisees’ behaviors and their incentives for this behavior. This study is one of the first to focus on franchisee, and thus controllee perspective. Based on the findings of this study, two specific suggestions for future research are made.
44
perspective, which is understudied and should be studied further, with a focus on how forms of control can result in a sense of more personal control.
45
References
Akremi, A. E., Mignonac, K., & Perrigot, R. (2010). Opportunistic behaviors in franchise chains: the role of cohesion among franchisees. Strategic Management Journal, 32(9), 930-948.
Ashford, S. J., Rothbard, N. P., Piderit, S. K., & Dutton, J. E. (1998). Out on a limb: The role of context and impression management in selling gender-equity issues. Administrative Science
Quarterly, 43(1), 23–57.
Bijlsma-Frankema, K., Costa, A. C. (2005). Understanding the Trust-Control Nexus.
International Sociology, 20(3), 259-282.
Bijlsma-Frankema, K., Sitkin, S. B., & Weibel, A. (2015). Distrust in the Balance: The Emergence and Development of Intergroup Distrust in a Court of Law. Organization Science,
26(4), 1018-1039.
Chanut, O., & Paché, G. (2011). Franchise relationships: tacit expectations, great expectations.
Problems and Perspectives in Management, 9(3), 75-81.
Colla, E., Ruiz-Molina, M. E., Gery, C. C., Schultz, M., Deparis, M., & Lemmet, L. (2019). Understanding franchisee performance: The role of the franchisee’s autonomy, affective commitment to the network and innovativeness. International Journal of Retail & Distribution
Management, 47(7), 733-751.
Costa, A., C., & Bijslma-Frankema, K. (2007). Trust and Control Interrelations. Group &
Organization Management, 32(4), 392-406.
Costa, S., Gugliandolo, M. C., Barberis, N., Cuzzocrea, F., & Liga, F. (2018). Antecedents and consequences of parental psychological control and autonomy support: The role of psychological basic needs. Journal of Social and Personal Relationships, 36(4), 1168-1189. Creswell, J. W. (2013). Qualitative Inquiry & Research Design: Choosing among Five
Approaches (3rd ed.). Thousand Oaks, CA: SAGE.
Croonen, E. P. M., & Brand, M. J. (2015). Antecedents of franchisee responses to franchisor-initiated strategic change. International Small Business Journal, 33(3), 254-276.
46
Dant, R. P., & Gundlach, G. T. (1998). The challenge of autonomy and dependence in franchised channels of distribution. Journal of Business Venturing, 14, 35-67.
Deci, E. L., Koestner, R., & Ryan, R. M. (1999). A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation. Psychological bulletin, 125(6), 627-668.
Farndale, E., Ruiten, J. van, Kelliher, C., & Hope-Hailey, V. (2011). The influence of perceived employee voice on organizational commitment: an exchange perspective. Human Resource
Management, 50(1), 113-129.
Farrel, D. (1983). Exit, Voice, Loyalty and Neglect as Responses to Job Dissatisfaction: A Multidimensional Scaling Study. Academy of Management Journal, 24(4), 596-607.
Gagné, M., & Deci, E. L. (2005). Self-determination theory and work motivation. Journal of
Organizational Behavior, 26(4), 331-362.
Greenberger, D. B., Porter, G., Miceli, M. P., & Strasser, S. (1991). Responses to Inadequate Personal Control in Organizations. Journal of Social Issues, 47(4), 111-128.
Grünhagen, M., & Mittelsteadt, R. A. (2005). Entrepreneurs or Investors: Do Multi-unit Franchisees Have Different Philosophical Orientations? Journal of Small Business
Management, 43(3), 207-225.
Hendrikse, G., Hippmann, P., & Windsperger, J. (2015). Trust, transaction costs and contractual incompleteness in franchising. Small Business Economics, 44(4), 867-888.
Hirschman, A., O. (1978). Exit, Voice, and the State. World Politics, 31(1), 90-107.
Kashyap, V., Antia, K. D., & Frazier, G. L. (2012). Contracts, Extracontractual Incentives, and Ex Post Behavior in Franchise Channel Relationships. Journal of Marketing Research (JMR),
49(2), 260–276.
Kirk, J., & Miller, M. (1986). Reliability and validity in qualitative research (Qualitative research methods, v. 1). Beverly Hills: Sage Publications. (1986).
47
Lange, P. A. M. van., Kruglanski, A. W., & Higgins, E. T. (2012). Handbook of theories of
social psychology (Vol. 1, pp. 416-437). London: SAGE Publications.
Landau, M. J., Whitson, J. A., & Kay, A. C. (2015). Compensatory Control and the Appeal of a Structured World. Psychological Bulletin, 141(3), 694-722.
Locke, E. A. (1976). The nature and causes of Job Satisfaction. Handbook of Industrial and
Organizational Psychology, 1, 1297-1343.
Long, C. P., Sitkin, S. B. (2018). Control-Trust Dynamics in Organizations: Identifying Shared Perspectives and Charting Conceptual Fault Lines. Academy of Management Annals, 12(2), 725-751.
Mayer, R. C., Davis, J. H., & Schoorman, F. D. (1995). An Integrative Model of Organizational Trust. Academy of Management Review, 20(3), 709-734.
Mellahi, K., Budhwar, P. S., & Baibing, L. (2010). A study of the relationship between exit, voice, loyalty and neglect and commitment in India. Human relations, 63(3), 349-369.
Mellewigt, T., Ehrmann, T., & Decker, C. (2011). How Does the Franchisor’s Choice of Different Control Mechanisms Affect Franchisees’ and Employee-Managers’ Satisfaction?
Journal of Retailing, 87(3), 320-331.
Moller, A. C., & Deci, E. L. (2009). Interpersonal control, dehumanization, and violence: A self-determination theory perspective. Group Processes & Intergroup Relations, 13(1), 41-53. Paik, Y., & Choi, D. Y. (2007). Control, Autonomy and Collaboration in the Fast Food Industry. A Comparative Study between Domestic and International Franchising. International Small
Business Journal, 25(5), 539-562.
Peterson, C., & Stunkard, A. J. (1989). Personal control and Health promotion. Social Science
and Medicine, 28(8), 819-828.
Pizanti, I., & Lerner, M. (2003). Examining Control and Autonomy in the Franchisor-Franchisee Relationship. International Small Business Journal, 21(2), 131-159.
