Innovativeness as an Unintended Outcome of Franchising: Insights from Restaurant Chains

Abstract

A growing trend in improving innovation outcomes is to go outside the firm's boundaries. One mechanism by which firms extend organizational boundaries is through franchising their channels. Yet, the effects of franchising on innovation outcomes have been overlooked in the literature. We propose that a firm's emphasis on franchising will affect its organizational innovativeness, conceptualized as product and process innovativeness, independently and with other firm characteristics—franchising experience, firm size, financial leverage, and slack resources. We find support for our hypotheses using a nonlinear seemingly unrelated regression model estimated using panel data from 38 U.S. restaurant chains between 1992 and 2005. The positive effect of the emphasis on franchising on product innovativeness is stronger for firms with high financial leverage, but weaker for firms with high slack resources. For process innovativeness, the effect is stronger for firms with high financial leverage but weaker for large firms, and for firms with high franchising experience and high slack resources. The findings indicate that a firm's emphasis on franchising has contingent effects on product and process innovation outcomes. Thus, franchising emerges as a competing mechanism (to alliances and joint ventures) that extends organizational boundaries and affects organizational innovativeness.

Should businesses keep consistent performance between channels? Empirical evidence from the impact of rating discrepancy on demand

“…Stores can belong to a chain or can be independent, so “chain” and “independent” are two key properties of the business (Wenzel, 2011). Consumers have more existing knowledge of chain stores because of their standardized operations and brand effect, which are favored by many consumers (Mallapragada & Srinivasan, 2017). When CRD exists for chain stores, consumers perceive lower credibility, believing that the quality and operations are not standardized as expected and do not meet the franchise's standards and policies (O'Neill, Mattila, & Xiao, 2006).…”

Acts of hidden franchisee innovation and innovation adoption within franchise systems

“…It should be noted that within the innovation literature, a multitude of different classifications and forms of innovation exist (Garcia and Calantone, 2002). For example, the different forms of innovation include product innovation, process innovation, marketing innovation and market innovation; whilst the different typologies of innovation focus on the magnitude of innovativeness or novelty, relative to existing offerings such as incremental and discontinuous innovations (Ettlie et al, 1984;Lewin-Solomons, 1999;Mallapragada and Srinivasan, 2017).…”

“…Whilst a number of franchising studies refer to the degree of autonomy or flexibility given to franchisees (Kaufmann and Eroglu, 1999;López-Bayón and López-Fernández, 2016;Pardodel-Val et al, 2014;Szulanskia and Jensen, 2008), if/how this results in innovation has received much less attention. Of those studies which have explicitly explored innovation within franchising, often franchisor or franchisee innovations are not differentiated between in the empirical data, but rather factors which influence system innovativeness as a whole are assessed (Mallapragada and Srinivasan, 2017;Karmeni et al, 2018;Shockley and Turner, 2016). Colla et al (2019) is notable in that it does differentiate between franchisee-led and network innovation, but these are then combined to form an overall assessment of system level innovativeness.…”

The influence of entrepreneurial personality on franchisee performance: A cross-cultural analysis

“…The potential need for local adaptation may mean though that franchisees with innovative dispositions are better able to meet the needs of their local markets. Presumably, given franchisees are not permitted to adapt without permission of the franchisor (Mallapragada and Srinivasan, 2017), franchisees will only be allowed to engage in innovations which are beneficial. Accordingly, we propose that an innovative disposition will be positively related to financial performance H1c.…”