Pedro Lucas de Resende Melo, Tales Andreassi y Moacir de Miranda Oliveira Jr.
This paper discusses which resources and competences can help to produce a stronger innovation cycle in the franchising environment. Not only is it concerned with the generation of innovations but also with maintaining competitive advantages stemming from this strategic guideline which will foster innovation continuity.
The use of the theoretical approach substantiated in this argument stands out; it is important to point out that the theoretical approach used in this discussion is based on RBV, which has been widely used as the basis of academic studies in the field of strategy in recent years, because of its ability to deal with issues relating to the support of differentiation, competitive advantages, and the development of competences (Wernerfelt, 1984; Wernerfelt, 1995; Barney, 1991; Prahalad and Hamel, 1990).
Especially with regard to franchising, there are RBV related studies, directed mainly toward franchise-related issues, involving reconfigurations such as disposing of the franchisor’s own units by franchising them and, inversely, franchisor acquisition of franchised units. Specific debate concerning RBV and innovation in franchising is still little examined and this paper hopes to have both contributed to this debate and generated arguments that can be pursued in greater depth by researchers interested in the field of franchising. To the managerial circles, represented by franchisors, the issues debated here may offer a range of resources and the development of competences aiming at achieving both innovation and competitive advantages. (Windsperger and Dant, 2006; Alon, 2001; Combs and Ketchen, 2003; Gillis, 2007; Castrogiovanni, Combs and Justis, 2006; Combs, Michael and Castrogiovanni; 2004).
Finally, we would like to comment on the application of the propositions developed in this paper. The first (P1) points out the need for the professionalization of the franchising chain agents, in particular of the franchisors. Given that most franchisees lack managerial knowledge, their dependence on the franchisor is greater, which means that a more proactive attitude from the franchisor’s part is required in what regards setting the franchise chain standards. This is when the use of innovation tools is more intensely under the managerial team’s responsibility. The franchise chain will enhance its professionalism with know-how and established standards of governance and thereby enjoy improved competitive advantages to support these innovations (Combs and Ketchen, 1999b; Bantel and Jackson, 1989; Conner and Prahalad, 1996; Teece et al., 1997; Schilling and Steensma, 2002; Amit and Schoemaker, 1993).
The second proposition (P2a, b) highlights the franchisees’ role in the innovation process. Franchises that emphasize the importance of franchisees with an enterprising profile lead the latter to perform better, as they will be proactive in their local markets. This is a key issue, since it is easier for the franchisee to recognize local opportunities than it is for the franchisor, especially with regard to international franchises or franchises in countries with significant cultural differences. The mechanism employed for this communication is knowledge management, which conveys information to the franchisor, who can then disseminate it among other franchisees (March, 1991; Sorenson and Sorenson, 2001; Thompson, 1994; Bradach, 1997; Windsperger and Dant, 2006; Cyert and March, 1963; Argote et al., 1990).
Concerning the third proposition (P3), the role of the practices that form the relations between franchisor and franchisees is outlined. The management of valid concerns among involved parties, especially those who have less decision-making power — in this case, the franchisees — will reduce common conflicts in the partnerships. Fewer conflicts and enhanced confidence in the franchisor should lead to more suggestions for modifications being proposed by the franchisees, as they will be more confident about being heard. All of this can lead to innovations in the franchising chain (Gillis, 2007; Dant and Gundlach, 1998; Kaufmann and Eroglu, 1998).
The fourth proposition (P4) discusses the role of mergers and acquisitions, which can create new organizational competences that the two firms would find hard to develop independently. Some of these competences can lead to innovation, given a greater sharing of resources among franchising chains. However, when it comes to joint actions between organizations, an observation has to be made: the risk of losing essential competences in the exchange of best practices is imminent. This may mar the skills developed throughout the years and may not ensure the use of these competences in the affiliates. Another possible negative effect is that the firm, by focusing on re-structuring, can put innovation processes on a back burner. Therefore, it is appropriate to make an exception for the processes of mergers and acquisitions as related to the process of generating innovations. (Prahalad and Hamel, 1990; Hitt et al., 1990; 1991; Wernerfelt, 1984; Helleloid and Simonin, 1994).
The fifth and last proposition (P5a, b) concerns the role of an enterprising organizational culture and the stimulating effect that a manager’s or founding member’s attitude can have on other members of the franchising chain. An enterprising culture allows innovations to arise easily and frequently among franchisees and employees. This is difficult for competitors to imitate and provides the firm the capacity to sustain the competitive advantages that come from innovation (Barney, 1991; Barney, 2001; Thornberry, 2001; Hofstede, 1985; Pinchot, 1985).
This way, following the proposition comments, the chart below displays, in short, the expected sources of innovation in franchising, as well as their respective resources and competences that which will promote this process:
Figure 1:
Propositions – Resources and competences for franchising innovation
Source: Authors
Thus, we hope that this article contributes to the discussions within the franchising environment, especially as to what regards innovation-related issues. One should stress that these are merely propositions, which limits their applicability and calls for continued development of the model. As a suggestion for further work, we hope that the variables that make up each of these propositions can be more clearly defined, generating a model that may be useful in the construction of hypotheses and empirical testing. It would be interesting, in this later application, to use quantitative research methods, in particular surveys of Brazilian franchises. One could also include qualitative research in these further studies, with a view to developing a better understanding of the particularities that the survey might identify. Further issues, such as grouping franchises in accordance with the sub-segments in which they operate, might be examined, in order to investigate in more detail whether they are in line with the model under debate. However, we suggest that the research focus on franchise management, i.e., on the franchisor.
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