Entrepreneurial orientation and the franchise system

Abstract

PurposeThe purpose of this paper is to understand the franchisor's perception of the role of entrepreneurial strategic orientation (EO) – innovative, risk‐taking, and proactive actions – within the special case of franchised firms, given the opposing forces for standardisation/uniformity and system innovation/adaptation.Design/methodology/approachA cross‐sectional research design, involving a mail questionnaire survey, was employed to collect data from a sample of franchisors operating in the UK. The hypotheses specified in the study were tested using a path model.FindingsThe results show that for franchise organisations, EO is positively related to performance. The recent meta‐analysis conducted by Rauch et al. also demonstrated that the correlation of EO with performance is fairly large (r=0.242). This correlation is consistent with the significant value reported in the study of 0.234. In addition, franchise system support structures were found to be important in fostering EO within the organisation.Research limitations/implicationsFuture studies may consider including other dimensions of EO, notably competitive aggressiveness and autonomy, in exploring the relevance of EO to the franchise system. It would be interesting to also use a longitudinal analysis to examine the long‐term effect of EO on the performance of franchised firms.Originality/valueThe study extends knowledge of the EO‐performance outcomes relationship to the franchising context where the role of EO is presently under‐explored. This could be attributed to the fact that the franchise concept is built on standardisation and uniformity, notions that run counter to the flexible strategies involved in fostering EO.

Performance in Franchise Systems : The Franchisee Perspective

“…In a franchising system as an entrepreneurial activity (Shane and Hoy, 1996), franchisees are the main source of innovation and local adaptation (Combs et al, 2004a) . Although franchising has been considered as an important strategy in service firms, it has been part of some research in entrepreneurship (Dada and Watson, 2013, Shane and Hoy, 1996, Dada et al, 2012, Combs et al, 2011b, Dant and Kaufmann, 1998 and there is still a lack of research on entrepreneurship within the franchising (Shane and Hoy, 1996). Therefore, franchising constitutes a unique form of entrepreneurial activity in which entrepreneurially-minded firms and individual entrepreneurs come together (Combs et al, 2011a).…”

“…In fact, Miller developed the dimension of proactiveness to innovativeness and risk-taking for measuring firm-level entrepreneurship (Edmond and Wiklund 2010). Innovativeness indicates the tendency to engage in new ideas, novelty and experimentation through the introduction of new products/services and creative processes (Lumpkin and Dess, 1996b); it also refers to the search for novel, unusual, or creative solutions to challenges facing a firm (Dada and Watson, 2013). Risk taking is associated with a willingness to take action in an unknown situation and commit more resources to projects with high rate of failure (Wiklund and Shepherd, 2005).…”

“…Regarding Miller's conceptualization, three dimensions of EO namely innovativeness, risk taking, and proactiveness, have been extracted and widely used in the entrepreneurship literature (e.g. Dada and Watson, 2013, Rauch et al, 2009, Keh et al, 2007, Wang, 2008; and few studies have examined Lumpkin and Dess' (1996) five-dimension framework of EO (Lumpkin and Dess, 2001, Li et al, 2009a, Hughes and Morgan, 2007.…”

“…While entrepreneurial orientation due to important roles in a firm's success (Wang, 2008) has received much attention in an organizational setting such as in small and medium-sized enterprises, only a few studies have explored EO in franchised firms (e.g. Falbe et al, 1999, Grewal et al, 2011, Maritz and Nieman, 2006, Maritz, 2006, Dada et al, 2012, Dada and Watson, 2013. While some authors believe the role of EO in franchised outlets is still is un-clear (Grewal et al,40 2011, Maritz and Nieman, 2006), but others believe that the franchisee's EO can improve performance (Chien, 2014).…”

“…A high level of EO enables firms to constantly scan the environment and identify opportunities and threats, properly respond to these challenges (Keh et al, 2007), and eventually grow in a competitive and uncertain environment Dess, 1996a, Shane andVenkataraman, 2000). Dada and Watson (2013) indicate that EO is positively related to the performance outcomes of franchise systems. According to Chien (2014), EO positively affects the performance of a franchised outlet, and those franchisees who have EO will gain greater competitive advantage and higher franchisee performance.…”