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Using Organizational Capability and Transaction Cost Theory to Explain Multi-unit Franchising

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Interfirm Networks

Abstract

This study presents a new model of franchisor’s choice of multi-unit franchising (MUF) by combining organizational capability and transaction cost theory. According to the transaction cost theory, high franchisees’ transaction-specific investments and high behavioral uncertainty increase the franchisor’s propensity to use MUF and high environmental uncertainty decreases the propensity to use MUF. Based on the organizational capability view, MUF increases the franchise firm’s capabilities (such as knowledge transfer and monitoring capabilities) and hence its competitive advantage compared to a single-unit franchising system. Specifically, highly intangible system-specific know-how requires high knowledge transfer and monitoring capabilities and therefore increases the franchisor’s propensity to use MUF. The results from the German franchise sector show that the combined application of transaction cost and organizational capability theory of MUF significantly increases the explanatory power of the research model. Overall this study adds to the literature by showing that—complementary to the transaction cost view—organizational capability theory explains MUF as knowledge transfer and exploitation mechanism.

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Author information

Authors and Affiliations

  1. ESC Rennes School of Business, 2 rue Robert d’Arbrissel, 35065, Rennes, France

    Dildar Hussain

  2. Department of Management, University of Vienna, Oskar-Morgenstern-Platz 1, 1090, Vienna, Austria

    Josef Windsperger

Authors
  1. Dildar Hussain
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  2. Josef Windsperger
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Corresponding author

Correspondence to Dildar Hussain .

Editor information

Editors and Affiliations

  1. Department of Management, University of Vienna, Vienna, Austria

    Josef Windsperger

  2. Centre Recherche en Economic et Management (CREM), Universite de Rennes 1, Rennes Cédex 7, France

    Gérard Cliquet

  3. Institut für Strategisches Management, University of Münster, Münster, Germany

    Thomas Ehrmann

  4. Department of Organization, Erasmus University, Rotterdam, The Netherlands

    Georg Hendrikse

Appendix: Measures of Variables

Appendix: Measures of Variables

  • Multi-unit Franchising (MUF): MUF = Total number of franchised outlets divided by total number of franchisees in a franchise system.

  • Franchisees’ Transaction-specific Investments (INV): Log of the initial investments required to start a new franchised outlet.

Environmental Uncertainty (ENV):

  • Three items, measured on a 7 point Likert-type scale (1 strongly disagree to 7 strongly agree), Cronbach alpha = 0.738

    1. 1.

      The sales at the outlet level are very fluctuating.

    2. 2.

      It is very difficult to predict the market development at the outlet level.

    3. 3.

      The economic environment in the local market changes frequently.

Behavioral Uncertainty (BEHAV):

  • Three items, measured on a 7 point Likert-type scale (1 strongly disagree to 7 strongly agree), Cronbach alpha = 0.720

    1. 1.

      The sales at the outlet level are very fluctuating.

    2. 2.

      It is very difficult to predict the market development at the outlet level.

    3. 3.

      The economic environment in the local market changes frequently.

Non-transferability of System-specific Know-how (NONTRANS):

  • Seven items, measured on a 7 point rating scale (1 not at all difficult to 7 very difficult), Cronbach alpha = 0.924. The franchisors were asked to rate how difficult it is to transfer to the franchisees:

    1. 1.

      Marketing know-how

    2. 2.

      Organizational know-how

    3. 3.

      Administrative know-how

    4. 4.

      Quality management know-how

    5. 5.

      Accounting know-how

    6. 6.

      Human resource know-how

    7. 7.

      IT management know-how

  • Sector (SECT): 0 = Product franchising firms; 1 = Services firms

  • System Size (SIZE): Log of the total number of outlets in the franchise system (franchised + company owned)

  • Age (AGE): Log of the number of years since opening up the first franchised outlet in Germany

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Hussain, D., Windsperger, J. (2015). Using Organizational Capability and Transaction Cost Theory to Explain Multi-unit Franchising. In: Windsperger, J., Cliquet, G., Ehrmann, T., Hendrikse, G. (eds) Interfirm Networks. Springer, Cham. https://doi.org/10.1007/978-3-319-10184-2_3

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