Matching franchisor-franchisee roles and competencies
Jolene Lim
Doctoral Candidate
Graduate School of Management
Southern Cross University
Gold Coast
Australia
Email: jlim23@scu.edu.au
Lorelle Frazer
Associate Professor in Marketing
Service Industry Research Centre
Griffith University
Brisbane
Australia
Tel: +61 7 3382 1142
Fax: +61 7 3382 1981
Email: L.Frazer@griffith.edu.au
Matching franchisor-franchisee roles and competencies
Executive Summary
This article develops a model to understand the roles and contributions franchisors and
franchisees made to the franchisor-franchisee relationship, as well as the competencies and
qualities each party needs to possess in order to play their respective roles effectively. The
model was developed by understanding the motivations for franchisors and franchisees to enter
into the franchising relationship.
Literatures and pilot interviews suggest that franchisors franchised their business as
opposed to expanding via corporate expansion because they view franchisees as a source of
capital for expansion as well as a good source for motivated and committed labour. Franchisees,
on the other hand, preferred to be part of a franchise system as opposed to be part starting up
their own individual business because of the well-known brand name and the support services
provided by franchisors. As such, franchisors need to possess vast experience in the industry
and business, as well as strong market knowledge, possess the relevant management skills and
right attitudes so as to successfully guide franchisees. Franchisees will need to have sufficient
capital for the business as well as having a positive attitude to learning and acquiring new skills,
as well as being willing to work hard to ensure success of the business.
Keywords
Franchising relationship, competencies, qualities, roles
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Matching franchisor-franchisee roles and competencies
Introduction
Franchising has grown dramatically in Australia since its humble beginnings. In 2002,
approximately 700 franchise systems existed in Australia, operating a total of 49,700 franchised
units. Some 92 percent of these systems are Australian based franchises (Frazer and Weaven
2002). However, the franchising sector is increasing at a decreasing rate, therefore suggesting
that the sector might be reaching maturity.
The relationship between a franchisor and franchisee is special, and therefore different
from most business relationships (Mendelsohn 1999). Franchising makes it possible to gain a
competitive edge through sharing of knowledge and resources (Nathan 1999), where the
franchisor provides the knowledge of running the business and the franchisee provides the
labour and capital resources to conduct the business. As such, it is essential that both partners
contribute towards building a satisfactory franchisor-franchisee relationship. However, each
party views the relationship from a unique perspective. Franchisors tend to rely on the
contractual arrangement whereas franchisees operate at a more personal level (Covatta 1992),
thus affecting the roles played in the partnership and the degree of power and control exerted.
Therefore, this paper explores the roles undertaken and the competencies expected of
franchisors and franchisees in achieving high levels of satisfaction in their relationships.
Incentives for franchisors
To determine what factors influence a franchisors’ level of satisfaction, we have to first
understand what motivates a franchisor to enter franchising. Agency theory provides a useful
framework as a means of explaining the nature of the franchising relationship.
Agency theory has been used by many scholars to explain a dyadic relationship where
one party (the principal) depends on another party (the agent) to undertake some action on the
principal’s behalf (Sharma 1997). This relationship is usually governed by a contract.
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Specifically, in franchising, the franchisor is the principal who delegates work to the franchisee
(the agent) who in turn carries out the work. The governing contract in this instance is the
franchise agreement, which specifies the roles and responsibilities of each party.
Agency theory is useful in situations where two parties are interdependent and
cooperative, yet rationally may pursue different, even contradictory goals (Lasser and Kerr
1997). It provides valuable insights into the reasons for the control problems and how to
develop strategies to enhance the performance of the franchisor-franchisee relationship. Agency
theory is appropriate in the study of franchisor-franchisee relationships because it focuses on
the economic motives operating within a relationship, that is, risks and incentives. In addition,
this theory is particularly useful for firms that are geographically dispersed, as it emphasises the
importance of the information transfer process, information asymmetry problems and
associated monitoring costs (Doherty and Quinn 1999).
In situations where franchisees are physically remote from the franchisor, monitoring of
the performance and behaviour of franchisees is more difficult. In such situations, franchisors
devise control mechanisms that give franchisees incentives to operate efficiently, thereby
avoiding shirking and excessive consumption of leisure. These mechanisms are devised in such
a way that franchisors and franchisees both stand to benefit. The simplest way to motivate a
franchisee is to provide a share of the profits from the business (Rubin 1978). Then, the
franchisee will work hard, and be efficient because any leisure consumed will clearly be worth
the true cost. However, the franchisor would not want to pay more than is necessary and
therefore a franchise fee is imposed. The franchisee pays for the right to run the business and
collect some of the profits from it for a specific period of time.
In that sense, franchisees provide franchisors with an opportunity to expand their
network with minimal capital and labour problems, as franchisees provide the capital and
labour for the business, while using the same trade mark and business name of the franchisor
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(Caves and Murphy 1976, Ozanne and Hunt 1971, Oxenfeldt and Kelly 1969). Because
franchisees have a stake in the business, they are motivated to expend greater effort.
Franchising provides a means of reducing monitoring costs by converting investors into
residual claimants. Therefore, franchisees provide franchisors with opportunities for a more
rapid and diversified expansion, and thus reduced risk and investment.
Incentives for franchisees
We now consider the attractions for aspiring business owners to be part of a franchise
system. Although a large number of new small businesses are formed every year (Finnerty and
Krzystofik 1985), there are a number of barriers preventing individuals from pursuing their
desire to form a new business, such as the general market environment, the financial and tax
climate, personal objectives and responsibilities, and lack of business experience. In terms of
financial barriers, newly formed SMEs have problems attracting investment money, customers
and competent personnel (Zimmerman 1997).
These barriers to entry for SME set-ups result in many potential entrepreneurs viewing
franchising as an attractive alternative, because the experienced franchisor assists with the
business start-up, provides training, and offers a higher chance of success due to the wellrecognised brand name and well-received product (Hoffman and Preble 1991). When aspiring
business owners compare the options of franchising versus independent business ownership, an
important consideration is the relative risk of business failure (Castrogiovanni, Justis and Julian
1993). Many studies have shown that franchising generally has a higher rate of success when
compared to independent SMEs (Castrogiovanni, Justis and Julian 1993), although findings are
mixed due to methodological differences employed in the studies (Bates 1995). Nevertheless,
aspiring entrepreneurs choosing to become franchisees certainly expect to improve their odds of
survival over the turbulent early years of business start-up.
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In addition, franchisees choose to join a franchise system as opposed to setting up their
own business, in the process trading off some of their independence and entrepreneurial spirit,
because they place importance on the support services provided by franchisors (Hunt 1977).
The level and range of support services provided varies in particular phases of the franchising
relationship. For instance, franchisees typically require more assistance at the early stage of the
relationship (Nathan 2000). Similarly, the value placed on support services and other benefits
of franchising vary according to the franchisee’s prior exposure to self-employment (Kaufmann
and Stanworth 1995).
Many studies have been carried out to assess the range of support services desired by
franchisees. One of the most potent advantages of franchising is the opportunity of belonging to
a large chain (Hunt 1977, Peterson and Dant 1990) with well-established trade-names and
trade-marks (Hough 1986), yet at the same time being an independent business person (Knight
1986). As well, franchisors are there to provide pre-opening and post-opening assistance. Other
prominent benefits of franchising to franchisees include training, national advertising and
promotion, product/service research and development (Mendelsohn 1999), professional
management and economies of scale (Fulop and Forward 1997).
Roles played by franchisors
By providing a range of support services for franchisees, franchisors play a number of
roles in the relationship. These include:
Consultant.
Consultant is a term used to describe experts who are there to assist in a
wide variety of purposeful interventions, in which some combination of problem-solving,
decision-making and meaningful organisational development takes place (Buchheit 1995,
Chornoboy and Gardner 1990). Consulting activity is still widely perceived as a series of
relatively simple sequential steps concerning content, process and procedure, and responses to
the intervention process (Kubr 1992). Process consultants place emphasis on helping members
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of the organisational client system to help themselves. It is a developmental activity for
facilitation intervention to accomplish agreed goals, as well as to improve the client’s ability to
anticipate and solve similar and novel problems in the future (Stumpf and Longman 2000). In
fact, the role of the franchisor as a consultant can be likened to the partner-manager concept of
services marketing, where franchisors assist franchisees in the operation of the business, such as
start-up assistance and on-going advice and administration support, up to a stage when the
franchisees are familiar with the business, and may therefore rely less on the franchisor.
Mentor. Mentors are people who are well respected for their work ethic, integrity and
capabilities. They are people to whom the protégé can relate and trust (Awaya, Mc-Ewan,
Heyler, Linsky, Lum and Wakukawa 2003). Mentors provide clarity. They help their protégés
understand how to function within a workplace (Clarke and Alleyne 2003). Indeed, the mentorprotégé partnership is a unique relationship characterised by sharing of expertise, offering
moral support and knowing when to help (Awaya et al 2003). There are formal and informal
mentoring processes (Waters, McCabe, Kiellerup and Kiellerup 2002). A lot of mentoring in
organisations is developed informally due to physical proximity and regular interaction that
occurs between the mentor and protégé (Kram 1985).
However, mentoring in new business start-ups such as franchising is usually formal by
nature and the mentor is often external to the protégé’s business. Such relationships may
therefore be lacking in familiarity, closeness and trust, as there is a greater physical distance
and fewer regular contacts between the mentor and protégé (Raggins and Cotton 1999). Further,
it is important that the mentor has vast business experience and technical expertise in the
business (Waters et al 2002). Similarly, franchisors should run pilot operations prior to
commencing franchising before attempting to impart their knowledge and expertise on
franchisees (Justis and Judd 2002).
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Manager / Employer. Similar to employers in large organisations, franchisors draw up
organisational policies, operational manuals to enable franchisees to conduct their business
within a defined framework, and provide training for franchisees to acquire appropriate
knowledge and skills. In addition, franchisors are responsible for maintaining quality standards
across the franchise system (Mendelsohn 1999) in a similar manner to a corporate manager’s
role. Indeed, franchisors exercise a high degree of control over their franchisees who have been
described as the ‘controlled self-employed’ (Felstead 1992, p. 259).
Entrepreneur. Franchisors are generally regarded as entrepreneurs. They are farsighted, able to visualise opportunities and take risks in investments, and are innovative. For
instance, it takes an innovative person to create new products or services, and a lot of
determination to and vision to build the business empire from a humble base. Franchising has
been described as an ‘entrepreneurial partnership’ (Kaufmann and Dant 1998, p. 11) because of
the challenges that franchising poses and the synergies achieved y combining franchisor and
franchisee forces.
Roles played by franchisees
Franchisees have corresponding roles to play in order to facilitate an effective
franchisor-franchisee relationship:
Client. The franchisor-franchisee relationship is similar to a consultant-client
relationship. The franchisor plays the role of a consultant to the franchisee by providing
professional industry and business advice. In turn, franchisees pay fees for this ‘service’. In this
situation, client and consultant are keen to achieve the same objectives (Kubr 1992), that is, the
franchisor and franchisee should be working towards similar goals and objectives for their
mutual benefit. However, there may be situations where the client and consultant may look
differently at both the expected outcome and the ways of carrying out the assignment (Kubr
1992). For instance, the franchisee may be more interested in activities that are beneficial for
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his or her own franchise only, and might decide to reduce quantity or quality in order to
increase profits for the business. However, the franchisor will be looking at the bigger picture,
and require all franchisees to produce goods and services of standard quality and quantity, so as
to achieve an identity as a chain, and to achieve uniformity across the chain.
The consulting process is a joint activity between the franchisor and franchisee (Kubr
1992). Therefore, franchisees need to play their part of a competent client in order to receive
full benefit of the services of the franchisor consultant. Clients often have to participate in the
production and delivery of the services they consume (Bowen and Cummings 1990). For
instance, franchisees need to act as “co-producers” (Bowen and Cummings 1990, p. 5) by
clearly describing the problems they are facing in running the franchise business before the
franchisor is able to provide them with the solutions to their problems. Also, franchisees must
be willing to learn and adapt in order to improve the operations of the business.
Protégé. Whilst the mentor is there to guide and assist a protégé in the learning process,
the protégé is responsible for his or her own learning (Clarke and Alleyne 2003). As such, a
protégé needs to possess strong initiative and motivation, and be keen to pick up new skills and
knowledge. The mentor and protégé need to have a deep understanding of each others’
responsibilities (Colwell 1998). Hence, mutual trust and respect are necessary requirements for
the growth of the mentoring relationship. Furthermore, mentoring arrangements thrive when
people are compatible and well suited, and they participate voluntarily.
Employee. A franchisee must be able to work within set guidelines, just as an
employee is required to work within an organisation’s rules and policies. Whilst franchising is
often promoted as a means of ‘buying a job’ and the franchisor and franchisee resemble
employer-employee, the relationship is more aptly described by the well-used slogan ‘work for
yourself, but not by yourself’. Thus, franchising is a means of achieving a sense of
independence within an employment-type relationship.
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SME entrepreneur. As an SME owner, the franchisee needs to possess an
entrepreneurial spirit and innovative mind. Although franchisors usually provide marketing,
research and development services, it is helpful if the individual franchisee is able to understand
the customers in his or her territory and make suggestions to target local marketing and product
offerings (Kaufmann and Dant 1998).
Competencies required of franchisors
Since franchisors are providing a wide range of services to franchisees, they need to
possess certain competencies in order to be able to carry out those support services and roles
successfully. These competencies include experience, knowledge, skills and attitudes.
Experience. Experience affects the consulting, mentoring and entrepreneurial
capability of the franchisor. Many occupations such as finance, production, personnel,
marketing and sales provide franchisors with relevant skills for performing these activities.
Experience in sales and marketing is particularly important and relevant for franchisors in the
retail industry. Prior work experience in management positions allows entrepreneurs to acquire
numerous useful and critical management skills such as negotiation and problem solving skills,
planning, organising, production and management skills (Barkham 1994). Furthermore, strong
exposure in the industry provides the entrepreneur with foresight to identify opportunities and
crises (Hill 2001). It also provides the entrepreneur with strong operational skills, although
some may argue that the need for technical skill becomes less important as managers move up
the management hierarchy in an organisation (Miller 1998).
Knowledge. Similar to SME owners/managers and employers, franchisors need to
possess extensive knowledge about the industry in which they are operating, especially
strengths and weaknesses of the business, understanding of competitors and detailed knowledge
about customer tastes, location and spending power (Barkham 1994). It is crucial that
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franchisors understand their target markets well, and have good knowledge of customers’ needs
and wants.
In brief, it is important for franchisors to be well educated, or at least to continually
upgrade their knowledge and skills, because the business is dynamic and therefore constantly
changing. Franchisors should also have vast exposure in a managerial position prior to setting
up their own businesses, or prior to franchising, and to be in the business long enough to
acquire sound business skills in the area of marketing, human resources and financial
management, as these are critical skills required for the development of any complex
organisation (Weinrauch 1986).
Skills. Franchisors need both tangible skills such as managerial and technical skills
(O’Driscoll and Eubanks 1993), and intangible qualities such as human skills (Sorohan 1996),
superior communication skills, personal motivation and influence skills (Franco 1991).
First, consider managerial skills. These can be broken down into six main areas such as
planning (Hemphill 1959), organising and co-ordinating (Gulick and Urwick 1937), directing
(Sayles 1964), controlling, decision making and resources allocation (Mintzberg 1973). In fact,
planning, organising and directing are three of the oldest traditional functions of managerial
skills (Gulick and Urwick 1937).
There is also a need for technical and operational skills that will reduce as a manager
climbs the corporate ladder (Katz 1955). However, in SMEs, where there is no clear
segmentation of job scope and/or different persons for various management roles, the
owner/manager should have a good understanding of how various technical work is being
carried out, and the types of operational skills required. The owner/manager should also have
good knowledge of the various facilities and equipment needed for easing the path to work
goals (Odiorne 1991).
Next, consider business skills, which are essentially skills such as :
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1. foresight - the ability to select a suitable location for franchisees
2. human resources skills – the ability to recruit and select appropriate franchisees and
employees
3. marketing and promotion skills – so as to provide marketing and advertising support for
the entire franchise system
4. administrative and financial skills – the ability to provide accounting and administrative
support to franchisees
5. research and development skills – in order to launch new products and services as
required by the changing needs and wants of consumers
In addition, franchisors should also be able to demonstrate excellent business skills such as
marketing strategies, selling and purchasing competencies, merchandising, human resources
and financial management skills (Weinrauch 1986), as well as research and development
knowledge.
Intangible qualities involve human skills that include leadership and interpersonal skills.
Franchisors should be able to provide clear and positive leadership to franchisees (Nathan
2000). This includes defining and sharing the vision for the franchise network, specifying shortand long-term goals with respect to market share, product development, service delivery and
other marketing issues. Good interpersonal skills which include effective interactions with
franchisees are important to motivate franchisees and influence them to work harder and share
the goals and visions of the franchise network. Indeed, sound interpersonal skills have been
found by many researchers to be the key to effective relationships (O’Driscoll and Eubanks
1993, Esper 1990, Kellogg 1984).
Finally, franchisors also need to possess sound communication skills so as to effectively
conduct counselling or handle conflict when the need arises. Communication is vital in
establishing mutual understanding between franchisors and franchisees (Williamson 1995), and
therefore strengthening the quality of the relationship between both parties. Indeed,
communication is the most important factor in clarifying misunderstandings, and therefore in
reducing the opportunity of conflict development (Justis and Judd 2002). It reflects the
franchisor’s ability to deal with franchisees during critical stages of the relationship.
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Attitudes. Although it is inevitable that franchisors hold more power in the franchisorfranchisee relationship (Lim and Frazer 2000, Nathan 2000), since it is the franchisor’s
intellectual property which is often at stake, franchisors should not try to run their system using
an authoritarian approach, as this generally leads to channel conflict (Anand 1987, Anand and
Stern 1985, Goodman 1984). Although franchisors hold a position of power and strength over
many aspects of how their system operates, franchisees are responsible for running their own
business, and are not an employee of the franchisor. Indeed, playing a consultative role,
franchisors should use a participative management approach or supportive leadership to
manage and interact with franchisees. Franchisees are likely to be more cooperative when they
perceived themselves to be part of the decision-making structure (Anand 1987, Anand and
Stern 1985, Guiltinan, Rejab and Rodgers 1980).
Franchisees tend to be more corporative with the franchisor if they perceive that their
relationship is beneficial to the successful operation of the franchise unit (Fried and Elango
1997). In fact, franchisees can be an excellent source of innovative ideas as they are in direct
contact with customers, and they come from different backgrounds and operate in varied
environments (Fried and Elango 1997).
Franchisors also need to be fair and consistent in decision-making. Inconsistency and
favouritism causes unhappiness among franchisees within the franchise system (Morrison
1996). Franchisors with integrity and honesty find themselves winning the trust of their
franchisees. Trust is an important element in the franchisor-franchisee relationship because it
reduces conflict (Lim 2001), improves individual performance (McAllister 1995) and promotes
inter-organisational cooperation (Ring and Van de Ven 1992). Furthermore, franchisees who
trust their franchisors, and are happy and satisfied with the franchise tend to be more motivated
in their work, thus improving their work performance (Hing 1995). If franchisors are able to
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instil integrity, open communication and trust as the franchise culture, the end result will be
more cooperation within the franchise network.
In fact, trust has been suggested as the relationship mechanism that facilitates cooperation
and coordination, thus generating relationship commitment (Morgan and Hunt 1994). Trust is
dependent on goal congruence and similarity between partners’ values and methods (Rodriguez
and Wilson 2002). Therefore, to have a higher chance of disseminating trust and commitment
within the franchise network, franchisors should select franchisees with similar goals and
visions. To foster the franchisee’s trust in a franchisor, the franchisor must provide accurate
information about the franchise, such as the profitability and turnover. Franchisors must also be
honest and trustworthy in their dealings with franchisees, and be able to deliver whatever they
have promised. In addition, franchisors must be able to deal with conflict constructively
(Nathan 2000).
In summary, franchisors need to possess certain competencies and qualities in order for
them to be able to franchise their businesses successfully, as well as to provide the necessary
support and guidance to their franchisees. This is of high importance because the level of
franchisee satisfaction is found to be based on their expectations relating to the support
provided by their franchisors such as promotion and advertising, as well as training and
operational support (Morrison 1996). Much of the possibility of success for a franchise
arrangement rests on the franchisor’s judgement and discretion with respect to many aspects of
the franchise system, as franchisees can be vulnerable to the risks of franchisor incompetence
(Joseph 1996). Figure 1 summarises the knowledge, attitudes, skills and experiences competent
franchisors should possess.
Competencies required of franchisees
Since one purpose of franchising is to provide franchisors with capital for expansion,
franchisors are generally concerned with the financial capability of franchisees, rather than
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managerial and business skills, because franchisors are there to provide support, training and
guidance in these areas (Weinrauch 1986). Nevertheless, there are certain competencies that
franchisees should possess.
An important advantage offered by franchising is the high level of franchisee motivation
compared with paid employees (Lillis, Narayana and Gilman 1976). That is, franchisees who
are motivated and committed to the franchise business will contribute their time and energy to
improve the franchise system. Furthermore, satisfied franchisees are more productive, and are
less prone to creation of conflict within the franchise system. Successful franchisees run a
profitable business, grow a based of happy customers, as well as supporting the values of the
franchise organisation and brand such as quality, service and reliability (Nathan 2000).
Franchisees must be able to monitor key performance indicators if their business is to remain on
track.
The responsibility of teaching franchisees suitable skills and knowledge rests very much
on the franchisor. As such, franchisees do not need to come into the business with much prior
industry, business and management knowledge or skills. In fact, some franchisors prefer
franchisees not to have any of these, so as to prevent franchisees from bringing bad habits or
practices acquired previously into the business. Indeed, some franchisors have indicated that
they prefer franchisees who are previously not from the same industry. Instead, franchisors
place emphasis on recruiting franchisees with excellent attitudes towards learning. Franchisors
want franchisees who are open and adaptable to acquiring new skills and knowledge, and are
diligent and fast learners, while displaying initiative and a strong work ethic.
Franchisees on the other hand, are not required to possess many of the skills, knowledge
and experience relevant to a specific industry or business, although it is desirable that
franchisees have some level of exposure to business, and a basic understanding of the market,
in order to function effectively as an entrepreneur. Indeed, participants from the interviews
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conducted by the researchers agreed that, although it is desirable for franchisees to have
experience in business and to possess managerial skills, these are not essential skills, since
franchisors are there to teach and guide franchisees accordingly. Instead, franchisees should
possess business acumen, energy and enthusiasm.
Methodology and Analysis
The above discussion led to the development of a theoretical model of franchisorfranchisee competencies as shown in figure 1. Data will be collected in two stages. The first
stage of data collection involves case studies of franchisors and three of their franchisees. These
three franchisees include a high, medium and low performing franchisee, in order to understand
if the needs and competencies differ in performance level of the franchisees. Data from this
stage will be used to develop hypotheses and for designing questionnaire items for the second
stage of the research. The second stage of data collection will involve surveying the population
of franchise systems within Australia.
At the time of writing, a series of pilot interviews has been conducted. Two case studies
involving two franchise systems – one from the retail industry and the other from the services
industry have been completed. Cases were selected from the retail and services industry within
Australia. Because not all industries exhibit similar environmental conditions (Zahra and
Bogner 1999, Dess and Beard 1984), the roles and competencies played by franchisors and
franchisees may differ. The retail and services industries were selected for this study because
business format franchising has fostered rapid expansion in these sectors (Justis and Judd 2002,
Cross and Walker 1987, Stanworth 1984).
In addition, changes in lifestyle have provided new service areas that are appropriate for
franchise systems (Justis and Judd 2002). For instance, double-income households have led to
consumer desire for increased convenience (Justis and Judd 2002) resulting in an outsourcing of
many domestic tasks. Franchise systems develop and maintain high quality in products and
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services and meet the convenience priorities of the purchasing public, leading them to be
successful businesses and leaders in their respective fields. Therefore, the service industry is
important area for franchising research.
Retail and services were selected for this study because these industries share similar
characteristics, allowing for a more accurate comparison. For instance, they are both front-line
industries where franchisees are required to provide service to and interact with external
customers, and both industries require long working hours.
Table 1 summarises the findings from the pilot interviews, discussed below. Case 1 was
a retail franchisor with 51 outlets, out of which 47 are franchised and owned by 43 franchisees.
The company began operating in 1991, and started franchising a year later. Case 2 is a service
industry franchisor. Similar to the retail franchisor, the company began franchising 12 months
after commencing operations. They now have 58 outlets owned by 45 franchisees and one
company owned outlet.
The services currently provided by the two franchise systems involve technical training,
research and development, advice and support, marketing and advertising. Only the retail
franchise system provides franchisees with an operations manual to guide them in the day-today operations of the business. However, the training provided is very different. The franchisor
from the retail industry provides franchisees with a five-day technical training program, while
the franchisor from the services industry provides franchisees with a more comprehensive twoweek training program on business and marketing knowledge. This may be because the
franchisor does not provide an operations manual. Regardless, franchisees of these systems felt
that the training they received was not sufficient. In fact, most of them – especially the retail
franchisees - felt that franchisors should conduct more comprehensive training, providing them
with business and industry knowledge. Moreover, franchisees felt that there should be ongoing
training in addition to the initial training. Most franchisees felt that there was insufficient
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support in the area of research and development; when new products were developed, and they
felt that they were not provided with the necessary training to acquire sufficient knowledge of
these new products. In addition, three of the franchisees interviewed felt that their franchise
systems were spending money on advertising and promotions in areas which do not benefit
them, although most of them acknowledged that this is normal in franchising since
considerations are given as a group.
Rather, all franchisees interviewed felt that the most important thing their franchisor
could do for them is provide more advice and support in the form of regular communications
and field visits. Most of them said that their franchisors ‘very much left them on their own’
after the first couple of months, while one franchisee said that he has not seen his franchisor in
18 months. In fact, all franchisees interviewed would like to be involved in any decisionmaking process that the franchisor undertakes for the benefit of the franchise system as a whole.
Although many franchisees agreed that their franchisor is only a phone call away, they felt that
this was not sufficient. Franchisees from the first case felt that whenever there were new
products, they were not given proper training, rather, only a fax or a newsletter, and they need
to clarify and obtain more information by making phone calls to the franchisor.
In addition, all franchisees interviewed agreed that the reasons why they joined a
franchise system, as opposed to setting up their own individual business, was because of the
brand name and reputation of the business, as well as the support and training given by the
franchisor, including marketing and advertising support.
Based on the support services desired by franchisees, all those interviewed agreed it is
of utmost importance for franchisors to possess sound understanding of the industry, and be
well experienced in the business, as well as having excellent communication skills. Most of the
interviewees also felt that franchisors need to exercise a participative management style, and
possess strong people and conflict-handling skills in order to handle internal conflict between
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themselves and franchisees, between franchisees, and between franchisees and customers.
Three interviewees also felt that franchisors should possess a strong work ethic.
All of the interviewees felt that the franchisor plays the role of mentor and a governing
figure in the relationship. They see the franchisor as a person who can guide them and equip
them with knowledge and guidance for the business, as well as someone to ensure that all
franchisees are doing the right thing so as not to tarnish the image of the business. Many of the
interviewees view the franchisor as a consultant, but only one franchisee regards his franchisor
as similar to an ‘employer’ who is there to provide guidelines for him to work within. However,
although some interviewees mentioned that the franchisor is an entrepreneur in his own right,
none felt that this role has any bearing in the franchisor-franchisee relationship.
Now, let us turn our attention to the competencies and roles of the franchisees. All
interviewees agreed that franchisees need to be financially stable. Some interviewees felt that
franchisors should be able to advise them accurately on the amount of finance required as one
franchisee commented that he almost failed in the business as he had not adequately prepared
sufficient funds for the business investment. As well, all the interviewees agreed that
franchisees need to be willing to learn and also be willing to comply with the requirements of
the system so as to achieve uniformity. In addition, most interviewees mentioned that
franchisees should be committed to the business, while a few mentioned a strong work ethic as
an important criterion for franchisees. They felt that franchisees need to be able to see the big
picture and do things for the long-term benefit of the system as a whole and not for personal,
short-term again. Two respondents mentioned that franchisees need to act in an ethical manner
so as not to encroach on the territory of their fellow franchisees.
All interviewees viewed the franchisee as a team player, while most of them also
viewed the franchisee as a protégé who is there to learn the business from the franchisor. Some
support was also obtained for viewing the franchisee as a client who is there to take advice from
www.franchise.edu.au
18
the franchisor. Only one interviewee saw the franchisee as an employee who must be able to
take orders from the franchisor and work within the guidelines of the ‘company’. Although all
interviewees felt that franchisees need to possess an entrepreneurial spirit, it was not felt that
franchisees play the role of corporate entrepreneurs in the franchisor-franchisee relationship.
In summary, the factors that would result in a high level of satisfaction for franchisors in
the franchisor-franchisee relationship would be having a franchisee who is compliant,
hardworking and consistently achieving a high level of sales and profits. Consequently, for a
franchisee to be satisfied, franchisors need to provide regular communications and field visits to
franchisees, and to involve franchisees in the decision making process. Franchisors also need to
have consistent ongoing research and development to keep the products of the franchise system
updated and in line with consumers’ demands. Finally, franchisors need to be there to provide
advice and support for all franchisees, regardless of the length of time they have been in the
business.
Most authors argue that profits are the underlying motive for all businesses (Kotler
2003), and thus would be a major factor leading to satisfaction for business owners. This study
does not contradict this belief, but rather builds on human resource theories that both intrinsic
and extrinsic rewards lead to satisfaction for people in the work place (Robbins and Coulter
2001). Indeed, past research by Gullup (1992) and Goodman (1980) have shown that the most
common sources of dissatisfaction among franchisees are lack of franchisor support and
inadequate financial returns.
Conclusion
Little research has focused on the competencies of franchisors and franchisees.
Although a great deal of literature on the types of services and support franchisors need to
provide for franchisees (Justis and Judd 2000, Nathan 2000, Mendelsohn 1999, Joseph 1996),
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19
and profiles have been designed in attempts to identify the ‘ideal’ franchisee (Nathan 2000),
little research has been conducted on the competencies of both franchisors and franchisees, and
the specific management roles played by each party to achieve a ‘satisfied’ franchise operation.
However, this process is an important step as franchisors and franchisees are seen to be engaged
in long-term business relationships (Mendelsohn 1999; Nathan 1996). Like any relationship,
franchising involves competent and compatible partners (Justis and Judd 2002; Nathan 1996) to
contribute and play their parts in order to achieve satisfaction.
The eight pilot interviews that were conducted provide some support for the preliminary
model. In particular, there was evidence that franchisors play the roles of the consultant and
mentor and that franchisees correspondingly identify as clients and protégés of the franchisors.
Little support was received that franchisors are perceived as employers in the franchising
relationships. Whilst franchisors were regarded as entrepreneurial, it was not felt that this
played an instrumental role in the relationship. However, an additional role of franchisor acting
as ‘policeman’ or a monitoring agent, and of franchisees acting as ‘team players’ surfaced from
the qualitative stage. Further interviews will be conducted to see if the above trend continues,
with refinement of the theoretical model as a result.
Specifically, this research will make three contributions. Firstly, this research
contributes to the conceptual understanding of the roles played and competencies required by
franchisors and franchisees. By possessing these necessary competencies, franchisors and
franchisees have the capability to play their roles effectively, and therefore, increase the level of
satisfaction, and reduce the level of conflict in the relationship. This research will establish and
test a framework of competencies required of franchisors and franchisees, and the respective
roles they should be competent to play in order to achieve a high level of satisfaction within the
franchisor-franchisee relationship.
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20
Contribution 1: Advances in theoretical understanding and knowledge. Although a
few franchise academics and consultants have publications on the recruitment and selection of
franchisees (Justis and Judd 2002, Nathan 2000, Mendelsohn 1999), there has been little
research carried out on this important aspect of the franchisor-franchisee relationship –
selection of partners. Although Tatham, Douglas and Bush (1972) and Bergen, Dutta and
Walker (1992) have conducted research on critical qualities required by franchisees, and the
importance of appropriate selection of franchisees, little attention has been given to franchise
recruitment as a two-way selection process – that is, besides the need to recruit suitable
franchisees, franchisees should also select an appropriate business in which to invest and a
suitable franchisor to work with. As yet, therefore, there has not been any theoretical
examination of, or explanation for, selection of compatible partners in the franchisor-franchisee
relationship. Indeed, this gap in knowledge reflects a general paucity of theoretical research on
one of the most significant elements of the recruitment and selection process in franchising.
Thus, this study may be one of the early attempts to establish qualities of potential franchisors
and franchisees, and applying these qualities to retail and service operations.
Contribution 2 : Establish framework for franchising recruitment practices.
Factors critical to the success of franchise businesses are found in the franchisor-franchisee
relationship (Justis and Judd 2002, Nathan 2002, Lim 2001, Mendelsohn 1999), as this
relationship is likened to a ‘marriage’ (Mendelsohn 1999; Nathan 1996). As with traditional
marriage, both partners have a role to play in the relationship, and both parties have to
contribute to the relationship to make it a success. Therefore, this research identifies the roles
both franchisors and franchisees need to play, and the competencies required for them to be
able to contribute positively to the relationship.
Contribution 3 : Potential benefit to the franchising sector and government. The
findings of this research and the framework drawn up can be used to result in a more efficient
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21
and effective recruitment and selection process. This may lead to fewer terminations of
franchise agreements due to unsuitable franchisees, and increase the performance of franchise
operations. The consequences would be a more efficient economy and therefore benefiting the
government.
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22
Table 1
Concept
Services that
franchisors are
providing for
franchisees
Findings from pilot interviews
Case Support
Training - Technical
knowledge
Research and
development
Operations Manual
Expert Advice
Franchise services
desired by
franchisees
Competencies
required of
franchisors
Competencies
required of
franchisees
Marketing and
Advertising
Regular communication
Advice and support
Well known brand
name
Strong reputation and
image of the business
Marketing and
advertising
Research and
development
Training and
development
Communication skills
People and conflict
handling skills
Participative
management style
Strong work ethic
Well experienced in the
business
Market knowledge of
the industry
Financially stable
Willingness to learn
Willingness to comply
Roles played by
franchisors
Strong work
ethic/hardworking
Strong commitment to
the business
Consultant
Mentor
Employer
Entrepreneur
Policeman
Roles played by
franchisees
Client
Protégé
Employee
Corporate entrepreneur
Teamplayer
www.franchise.edu.au
1a
√
1b
√
1c
√
1d
√
2a
-
2b
√
2c
√
2d
√
Total
7
-
-
-
-
√
√
√
√
4
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
4
8
8
-
√
√
√
-
√
√
√
6
-
√
√
√
√
√
-
-
√
√
√
-
√
√
6
4
-
√
√
√
-
-
√
√
5
-
-
√
√
-
√
√
√
5
-
√
√
√
-
-
√
√
5
-
√
√
√
-
√
√
√
6
√
√
√
√
√
√
√
√
8
-
√
√
-
√
-
√
√
5
-
√
√
√
-
√
-
√
5
√
√
√
√
√
√
√
√
√
√
√
3
8
√
√
√
√
√
√
√
√
8
√
√
√
√
√
√
√
√
8
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
8
8
8
√
√
-
√
√
√
√
-
6
√
-
√
√
√
√
√
-
6
√
√
-
√
√
√
√
√
√
-
√
√
√
√
√
-
√
√
-
√
√
√
√
√
-
8
1
0
8
3
√
√
√
√
√
√
√
√
√
√
√
√
√
√
5
1
0
8
23
Factors contributing
to the
satisfaction level of
franchisors
and franchisees in the
franchisorfranchisee
relationship for
franchisors
Factors contributing
to the
satisfaction level of
franchisors and
Franchisees in the
franchisorfranchisee
relationship for
franchisees
Franchisee compliance
√
√
√
√
√
√
√
√
8
Hardworking
franchisees
Good sales / Profits
√
√
√
√
√
√
√
√
8
√
√
√
√
√
√
√
√
8
Regular
communications with
franchisor
Involve franchisees in
decision making
process
On-going research and
development
On-going training
√
√
√
√
√
√
√
√
8
√
√
√
√
√
√
√
√
8
-
√
√
√
-
√
√
-
5
-
√
√
√
-
√
√
√
6
On-going support and
advice
√
√
√
√
√
√
√
√
8
Legend:
Case 1a = Franchisor of retail franchise
Case 1b = Franchisee of retail franchise – top performer
Case 1c = Franchisee of retail franchise – medium performer
Case 1d = Franchisee of retail franchise – low performer
Case 2a = Franchisor of services franchise
Case 2b = Franchisee of services franchise – top performer
Case 2c = Franchisee of services franchise – medium performer
Case 2d = Franchisee of services franchise – low performer
www.franchise.edu.au
24
Figure 1
Theoretical Framework – Franchisor / franchisee competencies as a determinant of franchise satisfaction
Support services provided by franchisors
Roles played by franchisors in the process
Locate suitable sites
Renovation/layout design/fixtures
Consultant
Skills
Training
Operational manual / policies
Mentor
Knowledge
Employer
Experience
Managerial assistance
Administration support
Management skills
Operational skills
Technical skills
Business skills
Research and development skills
Communications skills
Market knowledge
Competitors’ knowledge
Business knowledge
Industry knowledge
Business experience
Managerial experience
Industry experience
On-going advice and support
Market knowledge
Competencies required of franchisors
Corporate entrepreneur
HIGH
LEVEL
OF
SATISFACTION
Attitudes
Participative management style
Research and development
WITHIN
Willing to trust and respect others
Open to ideas and suggestions
Advertising and promotion
THE
Client
Attitudes
Protégé
Willing to learn and accept training
Motivated to learn
Hardworking
Initiative
Strong commitment
Far-sighted
Strong work ethic
Trustworthy
Employee
FRANCHISOR
-
FRANCHISEE
Strong communication skills
SME Entrepreneur
Skills
Knowledge
Experience
Corresponding roles played by franchisees
www.franchise.edu.au
Some managerial skills
Little industry and market knowledge
RELATIONSHIP
Competencies required of franchisee
25
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