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
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
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)
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).
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)
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
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
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)
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
Hypothesis 1
• Hypothesis 1. Franchisors use language
indicative of an entrepreneurial orientation in
recruitment websites.
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)
Charismatic Leadership
• Charismatic leadership builds the leader-follower trust
relationship, encouraging followers to forsake their own selfinterests 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
Hypothesis 2
• Hypothesis 2. Franchisors use language
indicative of charismatic leadership in
recruitment websites.
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, interfunctional coordination, long-term focus, and
profitability (Narver & Slater, 1990)
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 marketoriented
• Further, a franchisee focused on creating sustainable competitive
advantages by providing superior customer value would most
likely benefit the franchisor in reputation and revenue
Hypothesis 3
• Hypothesis 3. Franchisors use language
indicative of a market orientation in
recruitment websites.
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
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)
Measuring Entrepreneurial Orientation
• We used the five dimension conceptualization of
entrepreneurial orientation as the basis of our
analysis (Lumpkin & Dess, 1996)
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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)
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:
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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).
Words Illustrative of Charismatic Leadership
Construct
Sample Words
Collective Focus
Collectives: Assembly, cabinet, humanity, mankind, nation, race, union
People References: Crowd, residents, constituencies, majority, citizenry, population
Self-reference: I, I’d, I’ll, I’m, I’ve, me, mine, my, myself
Temporal Orientation
Present Concern: Become, care, desire, make, need, request, take, want
Past Concern: Attacked, attempted, became, behaved, bit, blew, blown, brought, burned, came, canvassed,
cared, caused, changed, colored, cooked existed, felt, folded, found, gave, given, tasted, taken, turned
Follower Worth
Praise: Admirable, brave, delightful, intelligent, kind, lovely, respected
Inspiration: Ambition, devotion, ideals, leadership, merit, optimism, promise, reassurance
Satisfaction: Comfort, cherish, delight, fascinate, gratify, laugh, love, pleasure, rejoice
Similarity to
Followers
Leveling: Anybody, everybody, fully, obvious, permanent, totally, unquestionably
Familiarity: Across, about, again, almost, between, each, toward, through, than, without
Human Interest: Children, family, friends, parents, relatives, widows, yours
Values
Spirituality: Charity, church, blessing, eternal, faith, hope, mercy
Patriotic Terms: Equality, freedom, justice, inalienable, liberty, old-glory
Tangibility
Concreteness: Animal, baseball, cancer, factory, household, movie, school, silk, sugar
Action
Aggression: Attack, challenge, combat, dominate furious, hurt, kill, oppose, preempt
Accomplishment: Achieve, aspire, create, finish, motivate, pursuit, resolution, succeed
Passivity: Accept, acquiesce, complacent, disinterested, hesitate, lackadaisical
Ambivalence: Blur, confound, hesitate, puzzle, quandary, vacillate, wonder
Adversity
Blame: Contemptible, desperate, guilty, incompetent, mediocre, rash, senile
Hardship: Conflict, crisis, death, fear, insecurity, loss, outrage, sorrow, tension
Denial: Didn’t, hadn’t, never, wasn’t, wouldn’t
Measuring Market Orientation
• We used a word list generated by three experts
to measure the five dimensions of market
orientation:
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competitor orientation
consumer orientation
inter-functional coordination
long term focus, and
profitability
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.
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
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
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.
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
Thank you!