Organizational Identity in the Franchise 500: An Exploratory Study of Entrepreneurship, Leadership and Marketing Persp

1. Organizational Identity in the Franchise 500: An Exploratory Study of Entrepreneurship, Leadership and Marketing Perspectives Di Wu, Kelly M. Davis, Aaron F. McKenny, Miles A. Zachary, Jeremy C. Short April, 2010

2. What Is Franchising? • Two independent parties establish an agreement whereby one firm (the franchisor) licenses the right to use its brand name and proprietary business processes to another firm or individual (the franchisee) in return for an initial payment and annual royalty (Combs, Michael, & Castrogiovanni, 2004; Curran & Stanworth, 1983) Franchisor Brand Name; Operation Methods; Technical Support; Advertisement; Community Royalty Fee/Share Sales; Risk share; Local Information and decisions; Scarce Capital; Contribution in brand Franchisee

3. The Importance of Franchising • Franchising is a popular route to organizational growth, both in the United States and globally (Michael, 2003) • In 2005, United States franchises employed 11 million individuals and were responsible for 4.4% of the United States’ private-sector economic output (IFA Educational Foundation, 2005)

4. Organizational Identity • Refers to the enduring attributes of an organization that make it unique and distinguish it from other similar firms (Albert & Whetten, 1985; Ashforth & Mael, 1989; Gioia, 1998) • Differentiates and groups organizations according to shared meanings by the collective (Corley, Harquail, Pratt, Glynn, Fiol, & Hatch, 2006) • Help organizations make difficult decisions, guide the interpretation of organizational issues, and impact decision making (Dutton & Dukerich, 1991; Dutton, Dukerich, & Harquail, 1994; Gioia, Schultz, & Corley, 2000) • Has even been suggested to influence the survival and performance of organizations (Barney, Bundeson, & Foreman, 1998; Stimpert, Gustafson, & Sarason, 1998).

5. Why Organizational Identity Matters to Franchisors • Opportunity for growth and competitive advantage (related to entrepreneurial orientation) • Impacts franchisor-franchisee matching/fit (related to charismatic leader-follower relationship) • Competition for franchisees (related to market orientation)

6. Using Multiple Theoretical Perspectives to Examine Organizational Identity • Triangulating theories on a single phenomenon (‘triangulation of theory’) can facilitate idea generation and a better understanding of the phenomenon (Neumann,2002) • We use research on organizational identity to bring together multiple theoretical perspectives • entrepreneurial orientation • charismatic leadership • market orientation

7. Using Franchisor Recruitment Websites to Examine Organizational Identity • There is reason to believe that organizational identity may play a significant role in the recruitment and selection of potential franchisees • Because of interdependence and the possibility of double-sided moral hazard (Combs et al., 2004; Lafontaine, 1992; Shane & Foo, 1999), the franchisor may espouse their identity in organizational narratives to target a specific franchisee profile

8. Entrepreneurial Orientation • An entrepreneurial orientation refers to the processes and practices that are characteristic of entrepreneurial companies (Lumpkin & Dess, 1996) • Shane and Hoy (1996) argue that franchising is a means by which a venture can be created cooperatively between franchisor and franchisee. Thus, franchising represents an entrepreneurial decision to create new value by launching a new venture (Grünhagen & Mittelstaedt, 2005)

9. Entrepreneurial Orientation • A defining characteristic of an entrepreneur is a willingness to assume significant risk in the face of uncertainty in exchange for the possibility of reaping significant rewards (Knight, 1921) • Similarly, franchisees make significant up-front and ongoing investments in their franchise with limited support from the franchisor in terms of mitigating the market risk of the venture • Therefore franchisees, in evaluating potential franchising opportunities, will look to maximize their rewards, taking calculated risks in doing so

10. Hypothesis 1 • Hypothesis 1. Franchisors use language indicative of an entrepreneurial orientation in recruitment websites.

11. Charismatic Leadership • Conceptually, the field of leadership shares much in common with the broader domain of entrepreneurship, as both areas of scholarly interest consider vision, influence, planning, and leading innovative people (Cogliser & Brigham, 2004) • Indeed, the field of entrepreneurship has been argued to be leadership with the goal of strategic value creation (Gupta, MacMillan, & Surie, 2004)

12. Charismatic Leadership • Charismatic leadership builds the leader-follower trust relationship, encouraging followers to forsake their own self-interests for the good of the group (Conger and Kanungo, 1987; 1988) • Charismatic leadership (and specifically charismatic rhetoric) may assist in closing the social distance between the franchisor and potential franchisees • Through the use of rhetoric, the franchisors enact a dynamic leader-follower relationship with their franchisees, one with the ultimate goal of engaging followers in a stronger and more personal manner, resulting in a commitment to the franchise

13. Hypothesis 2 • Hypothesis 2. Franchisors use language indicative of charismatic leadership in recruitment websites.

14. Market Orientation • The construct of market orientation is characterized by a firm-wide generation, dissemination, and response to market information (Kohli & Jaworski, 1990) • A single construct, market orientation is separated into five dimensions—customer orientation, competitor orientation, inter-functional coordination, long-term focus, and profitability (Narver & Slater, 1990)

15. Market Orientation • Franchisees have often been associated with entrepreneurs (Grünhagen & Mittelstaedt, 2005; Kaufmann & Dant, 1998), and in such capacity, likely value the several dimensions of the market orientation construct • A market perspective can help franchisees improve performance (Justis, Olsen, & Chan, 1993) and will play an important role in the franchisor’s strategy (Foster, 1989) • Franchisors espousing a market orientation in recruitment websites make a powerful statement of dogmatic principles, in-turn, attracting those potential franchisees that would also be market-oriented • Further, a franchisee focused on creating sustainable competitive advantages by providing superior customer value would most likely benefit the franchisor in reputation and revenue

16. Hypothesis 3 • Hypothesis 3. Franchisors use language indicative of a market orientation in recruitment websites.

17. Sample Description • Recruitment websites from the Franchise 500 for the year 2010 • The Franchise 500 is a common sampling frame for research in the franchising context (e.g., Combs & Castrogiovanni, 1994; Sen, 1998) • To identify recruitment websites we looked for the following key words: “to be a franchisee”, “own a business”, “franchising information”, “franchisee opportunity”, “cooperation”, and other permutations thereof • N=466

18. Measurement - CATA • Content analysis of narrative texts holds several advantages for this study. • Can collect objective, reliable, and replicable data (Finkelstein & Hambrick, 1996) • Can avoid the subjective errors • DICTION has previously been used to measure entrepreneurial orientation (Short et al., 2009; 2010) and charismatic leadership (Bligh et al., 2004a; Bligh et al., 2004b)

19. Measuring Entrepreneurial Orientation • We used the five dimension conceptualization of entrepreneurial orientation as the basis of our analysis (Lumpkin & Dess, 1996) • Autonomy • Competitive Aggressiveness • Innovativeness • Proactiveness • Risk taking • We used the word list developed and validated by Short and colleagues in their study applying content analysis to organizational narratives (2010)

21. Measuring Charismatic Leadership • Charismatic leadership was measured using eight constructs which represent concrete examples of the characteristics of charismatic language suggested by Shamir et al. (1994). These constructs include: • a temporal orientation, • a collective focus, • an appeal to followers’ worth, • similarity to followers, • values and moral justifications, • tangibility, • action, and • adversity (Bligh et al., 2004a).

22. Words Illustrative of Charismatic Leadership

23. Measuring Market Orientation • We used a word list generated by three experts to measure the five dimensions of market orientation: • competitor orientation • consumer orientation • inter-functional coordination • long term focus, and • profitability

25. Results • One-sample t tests with a test value of zero to assess the presence of rhetoric indicating entrepreneurial orientation, charismatic leadership, and market orientation, respectively • The t-tests provide strong support for hypotheses 1, 2, and 3 (p < .01 for each dimension), indicating that franchisors do include language indicative of an entrepreneurial orientation, charismatic leadership, and a market orientation in their franchising recruitment websites.

26. Discussion & Implications • Our analysis demonstrates that a number of franchisors emphasize rhetoric aligned with the concepts of market orientation, charismatic leadership, and entrepreneurial orientation in their organizational narratives • Considering the role of vision for both leaders and followers in the franchising context allows for an integration of the leadership and entrepreneurship fields • Franchisors use rhetoric aimed at attracting franchisees who are similar to entrepreneurs

27. Future Research Directions • Investigate performance measures • Piece out whether logics of these three portions of organizational identity are cumulative or substitutive • The follower side of the leader-follower relationship by interviewing or surveying followers to better understand what about the recruitment website influenced their decision to select a particular franchisor • The extent to which there is a reduction in agency costs through the alignment of franchisors’ and franchisees’ identities and decision-making processes

28. Limitations • The Franchise 500 does not include a random sample of US franchising firms • Only firms that submit an application and met a variety of other requirements over the previous year will are eligible for inclusion in the Franchise 500 in that year • The language used by franchisors on their recruitment website conveys what they desire the franchisee to be, even if this information does not align with the values and beliefs of the franchisor or other organizational members.

29. Conclusion • This study integrates the organizational identity and franchising literatures • We found evidence that franchisors use entrepreneurial orientation, charismatic leadership, and market orientation language in their online franchising recruitment websites to attract potential franchisees

30. Thank you!