Title Entrepreneurial orientation and the franchise system: organisational
antecedents and performance outcomes
Type Article
URL http://ualresearchonline.arts.ac.uk/6073/
Date 2013
Citation Dada, Olufunmilola and Watson, Anna (2013) Entrepreneurial orientation
and the franchise system: organisational antecedents and performance
outcomes. European Journal of Marketing, 47 (5/6). pp. 790-812.
Creators Dada, Olufunmilola and Watson, Anna
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1
Entrepreneurial Orientation and the Franchise System:
Organisational Antecedents and Performance Outcomes
Introduction
Entrepreneurial orientation (EO), with its three core dimensions of risk-taking, proactiveness
and innovativeness (Keh et al., 2007), is said to be a key ingredient for firm success (Wang,
2008). EO describes how a firm operates (Lumpkin and Dess, 1996), capturing “specific
entrepreneurial aspects of decision-making styles, methods, and practices” (Wiklund and
Shepherd, 2005, p.74). Indeed, Rauch et al. (2009) suggest that the entrepreneurial strategy-
making processes that key decision makers employ are central to achieving their firm’s
purpose, sustaining its organisational vision and creating competitive advantage. The EO
concept is relevant to any firm irrespective of its size and type (Knight, 1997), and with over
100 studies having been conducted on EO, its relevance for enhancing firm performance is
widely accepted (Rauch et al., 2009).
Empirical studies have examined the EO construct in various ‘entrepreneurial’
organisational settings, such as in small and medium-sized enterprises (SMEs) (Avlonitis and
Salavou, 2007; Keh et al., 2007; Moreno and Casillas, 2008), in technological start-ups (Lee
et al., 2001), and in spin-offs (Walter et al., 2006). But only a few published studies have
examined issues relating to EO in franchised firms (e.g. Falbe et al., 1998), and even in a
retail context (e.g. Griffith et al., 2006) where franchising is common. Although authors such
as Maritz (2005) and Maritz and Nieman (2008) have explored whether franchise systems
exhibit an EO, the potential impact on system performance – in essence the desirability of an
EO – has not been explored extensively.
2
In the context of franchising, the likely relationship between EO and franchise system
performance is debatable. The fact that franchising is built upon realising standardisation, in
differing local market environments, has led to much controversy on how entrepreneurial
behaviours can thrive within this organisational form (Dada et al., 2011; Ketchen et al.,
2011). Although EO at the franchisor level is not disputed (see e.g. Maritz and Nieman, 2006,
2008), enabling an EO amongst the franchisees within a franchise system could be damaging,
as the dimensions (such as franchisee innovations) can be harmful to the system rather than
beneficial. While pursuing their individual entrepreneurial interests, franchisees may depart
from the franchisor’s proven procedures (Baucus et al., 1996; Gassenheimer et al., 1996) and
this may pose a risk for the franchise system (Boulay, 2008). As Cox and Mason (2007,
p.1056) noted,
“If franchisees deviate from the system’s standard model in pursuit of their
own self-interest this will lead to trademark erosion and quality deterioration”. Controversy
therefore surrounds the extent to which an EO can be fostered amongst the franchisees within
a franchise system (see e.g. Maritz and Nieman, 2006, 2008) and also whether franchisees
can in fact be regarded as entrepreneurs (see e.g. Falbe et al., 1998; Lindsay and McStay,
2004). However, the differing local market environments in which franchisees operate mean
that some flexibility and opportunity to innovate may be important for them to meet local
market needs (Falbe et al., 1998), and this can provide a source of competitive advantage
(Baucus et al., 1996). Given the important role of franchising in global wealth creation (Hoy
et al., 2000), understanding the extent to which an EO is desirable in franchise systems is an
area which merits attention. Studying this research area also enables us to fill this gap in the
literature.
This study therefore aims to understand the extent to which an EO is germane to
franchised firms. In particular, we examine the organisational antecedents and performance
outcomes of EO in franchise systems. Although several key dimensions of the EO construct
3
have been proposed in the literature (Wang, 2008), there is consensus amongst several
researchers that risk-taking, innovativeness and proactiveness are the core dimensions
(Wiklund and Shepherd, 2005). As noted by Wiklund and Shepherd, this conceptualisation
largely follows from the argument that EO is revealed through the characteristics of an
entrepreneurial firm– undertaking innovations, acting proactively, and taking risks.
Therefore, our focus in this study will be on the overall EO construct, comprising these three
core dimensions. It should also be stressed that given EO is an organisational level construct
(Covin and Lumpkin, 2011) this paper explores EO at system level, rather than by exploring
the actions of individual franchisees.
In accordance with Brown and Dant’s (2008) criteria for making a significant
contribution to the literature, the main contributions of this paper are threefold: (1) we delve
into the dimensions of potential antecedent variables (franchise system structural support and
franchise contract clauses) and outcome variables (e.g. a range of non-financial performance
outcomes) of EO that have been usually ignored in existing franchising studies. Moreover,
issues relating to performance have generally received minimal attention in the franchising
context (Barthélemy, 2008); (2) we address key limitations of the few existing studies on EO
and the franchise system such as the reliance on a small number of case studies, the focus on
a single industry and on the franchisee perspective (see e.g. Nelson and Coulthard (2005) and
Sul and Khan (2006)); and (3) by presenting an empirical study of EO, drawing on a sample
of franchise systems from the UK, the present paper broadens the scope of prior franchising
studies. In a recent paper, Dant (2008) called for researchers to look beyond the North
American contexts for data as most franchising research has focused virtually exclusively on
the US. Although both the UK and the US have reasonably well developed franchising
sectors, the UK market is less mature than the US, thereby enabling us to provide new
insights into the phenomenon being considered.
4
In the next section we review the relevant background literature on EO and franchising;
the related hypotheses are then developed. This is followed by a discussion of the research
methodology, prior to presenting the research results. We conclude by highlighting the
implications of the study, its limitations and the future research directions.
Literature review and hypotheses development
The EO construct
The concept of EO emanated from the research of scholars such as Miller (1983, p.770) who
defined an entrepreneurial firm as one that “engages in product market innovation,
undertakes somewhat risky ventures and is first to come up with ‘proactive’ innovations,
beating competitors to the punch”. Although some authors (e.g. Hughes and Morgan, 2007;
Lumpkin and Dess, 1996) have suggested there are five dimensions of EO, namely
autonomy, competitive aggressiveness, innovativeness, proactiveness, and risk-taking, there
is consensus amongst researchers (Wiklund and Shepherd, 2005) around the latter three
dimensions. Wiklund et al. (2009) stressed that even in recent studies scholars have decided
to use the original and well validated scale of Miller (1983), with innovativeness, risk-taking,
and proactiveness as the underlying dimensions of EO. Therefore, this paper will focus on the
overall EO construct, comprised of these three dimensions.
The innovativeness dimension involves the search for novel, unusual, or creative
solutions to challenges facing a firm (Morris et al., 2002). This includes the development of
new products and services (Walter et al., 2006), as well as new administrative techniques,
technologies, and practices for the firm’s operations (Knight, 1997). Risk-taking involves a
firm’s propensity to support projects in which the expected results are uncertain (Walter et
al., 2006) such as moving into unfamiliar new markets and committing substantial resources