Real Options, Intangible Resources and Performance of Franchise Networks

Abstract

This study investigates the performance of franchise networks through the lens of the resource‐based and real options theory. First, according to the resource‐based view, we argue that the intangible resources of the franchisor (system‐specific know‐how and brand name) and the intangible outlet‐specific resources of the franchisees (exploration and exploitation capabilities) positively impact the performance of the franchise system. Second, on the basis of the real option perspective, we show that the franchisor's use of an explicit call option in the franchise contract—as a clause that gives him or her the right to acquire franchise units—increases the franchisor's managerial flexibility and incentives for intangible investments and hence improves the performance of the franchise network. We test the hypotheses with cross‐sectional data from the franchise sector in Germany. The data provide some support of the hypotheses. Our study contributes to the franchise and interorganizational network literature as no prior study has applied the real option perspective to franchising. Copyright © 2013 John Wiley & Sons, Ltd.

Franchise ownership redirection: real options perspective

“…Among the few researchers that use real options, Gorovaia and Windsperger (2013) conducted empirical research on franchise performance using a resourced-based, real options view, and Nugroho (2015) modeled franchise revenue guarantee using put type options. Lee (2010) also constructed a real options model to evaluate the franchisee's decision to open a franchise.…”

“…the franchise contract (Gorovaia & Windsperger, 2013). This legal clause could regulate the rights to acquire as well as the price of the acquisition (Kogut, 1991).…”

Performance in Franchise Systems : The Franchisee Perspective

“…It also has been considered to be an important strategy for those firms that would like to expand their business (Rajagopal, 2007). Franchising as an organizational form is used in many industries (Felício et al, 2014b, Michael andCombs, 2008), especially in retail and service chains (Gillis et al, 2014, Gorovaia andWindsperger, 2013), where due to the nature of the product or service, it is difficult to separate production from consumption. Such firms are required to spread out their outlets geographically to be near their customers (Combs et al, 2004b).…”

“…Therefore, with the aim of taking advantage of environmental opportunity and increasing sale, the franchisee's resources and capabilities have a significant role in a franchised outlet performance (Gorovaia and Windsperger, 2013). Thus, regarding the RBV, the franchisee's tangible and intangible resources, such as a firm's management skills, its organizational processes and routines, and the information and knowledge under its control (Armstrong and Shimizu, 2007), are the most important factors that contribute to the performance of a franchised outlet (Gorovaia and Windsperger, 2013).…”

“…Thus, regarding the RBV, the franchisee's tangible and intangible resources, such as a firm's management skills, its organizational processes and routines, and the information and knowledge under its control (Armstrong and Shimizu, 2007), are the most important factors that contribute to the performance of a franchised outlet (Gorovaia and Windsperger, 2013). However, despite the importance of the RBV in studying firm performance in academic research (Newbert, 2007), it has received less attention in previous studies in a franchising context (Gorovaia and Windsperger, 2013).…”