BUSINESS FORMAT

FRANCHISING:
INNOVATION & CREATIVITY
OR REPLICATION &
CONFORMITY ?

Professor John Stanworth

Stuart Price
David Purdy
Dr. Nicos Zafiris
& Dr. Alessandro Gandolfo

INTERNATIONAL FRANCHISE RESEARCH CENTRE

SPECIAL STUDIES SERIES NO.9

JUNE 1996

PUBLISHED BY UNIVERSITY OF WESTMINSTER PRESS

ISBN 1 85919 097 9

© University of Westminster Press

THE INTERNATIONAL FRANCHISE International Journal (MCB University
Press). Additionally, Franchise Growth And
RESEARCH CENTRE (IFRC) 1993-2007
Failure In The U.S. And The U.K.: A
University of Westminster, London, UK.
Troubled Dreamworld Revisited received the
Best International Paper Award in 1997,
"The International Franchise Research
again from the Society of Franchising. This
Centre (IFRC) is committed to
paper was later published in Franchising
improving the understanding of
Research: An International Journal.
franchising. This is achieved by the
publication of impartial research and
Close links were fostered with universities in
by the encouragement of informed
Rome and Pisa (Italy), Haute Alsace
debate."
(France) and Boston, Minneapolis and
Texas (USA), with a view to research
Franchising operates in a dynamic environ-
collaboration. Professor Pat Kaufmann of
ment, with new issues and challenges
Atlanta, Georgia, addressed our inaugural
emerging, including: globalisation, coping
annual strategy seminar, in 1994. Overseas
with competition, disclosure, industry
speakers in subsequent years included
regulation, managing relations with
Cheryl Babcock, Director of the Franchising
franchisee associations, franchisee
Institute, University of St. Thomas,
recruitment & market saturation.
Minneapolis (1995), Professor Rajiv Dant,
University of Boston (1996), Professor
Against this backdrop, the IFRC was
Francine Lafontaine, University of Michigan
established in 1993 by Professor John
(1997), Professor Claude Nègre, University
Stanworth (Director of the Future of Work
of Haute Alsace (1997), Colin McCosker,
Research Group at the University of
University of Southern Queensland (1998),
Westminster), supported by Brian Smith (ex-
Professor Frank Hoy, University of Texas at
BFA Chairman, franchisee, franchisor and
El Paso (1998), Professor Jack Nevin,
author), and Chair of its Steering Group.
University of Wisconsin-Madison (1999),
Professor Tom Wotruba, San Diego State
FOUNDER MEMBERS
University (1999), Professor Bruce Walker,
University of Missouri, (2000), and,
Founder members and sponsors included:
Professor Wilke English, University of Mary
Barclays Bank, the British Franchise
Hardin-Baylor (2000).
Association (BFA), Dyno-Rod, Franchise
Development Services Ltd., Lloyds Bank
IFRC members were active supporters of the
(now Lloyds Group), Mail Boxes Etc.,
International Society of Franchising, and
Midland Bank (now HSBC), Prontaprint,
hosted the ISoF 2005 conference in London.
Rosemary Conley Diet & Fitness Clubs,
Royal Bank of Scotland, The Swinton Group,
The IFRC ceased its research activities in
and Wragge & Co.
2007, when John Stanworth took retirement.
PUBLICATIONS
Web versions of IFRC Special Studies
Series Papers 1993-2001 (listed overleaf)
Their support enabled the IFRC to publish a
number of reports, including its Special
Many of the earlier papers have been re-set,
Studies Series Papers, journal articles,
to allow a successful conversion to Acrobat,
book chapters and conference papers.
and are now available online.
Two IFRC papers received three awards
John Stanworth, Emeritus Professor,
over a period of 12 months (1996-97). The
University of Westminster
first being Business Format Franchising:
http://www.westminster.ac.uk/schools/
Innovation & Creativity or Replication &
business
Conformity ?, which received the Best
International Paper Award in 1996, from the
David Purdy, Visiting Fellow,
Society of Franchising. This paper also
Kingston University
received the Outstanding Paper of 1996
http://business.kingston.ac.uk/sbrc
award from Franchising Research: An
December 2010

International Franchise Research Centre Special Studies Series Papers 1-16 Web Versions 2010 p.1
LIABILITY DISCLAIMER
The information and analysis in each report
is offered in good faith. However, neither the
publishers, the project sponsors, nor the
author/s, accept any liability for losses or
damages which could arise for those who
choose to act upon the information or
analysis contained herein.
IFRC Special Studies Papers 1993-2001
10 London: A Capital City For Franchisee
Recruitment, (Mills, Stanworth &
Purdy), 1997
11 The Effectiveness of Franchise
Exhibitions in the United Kingdom,
(Chapman, Mills & Stanworth), 1997
12 Franchising: Breaking Into European
Union Markets, (Stirland, Stanworth,
Purdy & Brodie), 1998

Web versions published online December 13 Succeeding As A Franchisor,

2010, via via http://www.scribd.com/:
1 The Blenheim/University of
Westminster Franchise Survey:
Spring 1993, (Stanworth & Purdy),
1993
2 Improving Small Business Survival
Rates via Franchising: The Role of the
Banks in Europe, (Stanworth & Stern),
1993
3 Targeting Potential Franchisees:
Industry Sector Backgrounds and
Declared Areas of Interest, (Purdy &
Stanworth), 1994
(Stanworth & Purdy, published jointly
with Business Link London Central),
1998
14 Direct Selling: Its Location in a
Franchise Typology, (Brodie &
Stanworth), 1999
15 Unravelling the Evidence on
Franchise System Survivability,
(Stanworth, Purdy, English &
Willems), 1999
16 Survey: Professional Services For
Franchising In The U.K., (Stanworth &
Purdy), 2001

4 The Impact of Franchising on the

Development Prospects of Small &
Medium-sized Enterprises (SMEs) in
Europe, (Stanworth & Purdy), 1994

5 The Blenheim/University of
Westminster Franchise Survey: A
Comparison of UK and US Data,
(Stanworth, Kaufmann & Purdy), 1995

6 Developing a Diagnostic
Questionnaire as an Aid to Franchisee
Selection, (Stanworth), 1995

7 Franchising as a Source of
Technology-transfer to Developing
Economies, (Stanworth, Price, Porter,
Swabe & Gold), 1995

8 Aspects of Franchisee Recruitment,

(Macmillan), 1996

9 Business Format Franchising:

Innovation & Creativity or Replication
& Conformity ?, (Stanworth, Price,
Purdy, Zafiris & Gandolfo), 1996

International Franchise Research Centre Special Studies Series Papers 1-16 Web Versions 2010 p.2
 BUSINESS FORMAT FRANCHISING:
INNOVATION & CREATIVITY
OR
REPLICATION & CONFORMITY ?

Revised version of an award-winning paper presented to the

Society of Franchising, February 17-18, 1996, Honolulu, USA,

Best International Paper Award

Sponsored by
Franchise UPDATE Publications

SUMMARY

Franchising, as an organisational form, continues to increase in importance in the provision of

services, jobs and self-employment opportunities. However, as contextual environments become
increasingly complex and dynamic, so innovations are needed in order to improve operating
efficiencies, initiate or renew life-cycle stages, and realise a closer fit between organisations and
the rigours of their markets. There are a number of correlates of innovation in franchising, including
external environmental conditions, organisational culture and climate and franchisee
characteristics. This paper offers an exploratory overview of these factors and argues that
franchisee autonomy can play a pivotal role in influencing innovative behaviour.

Keywords: Franchising, Innovation, Organizational Change, Large-Firm/Small-Firm Links

International Franchise Research Centre - Special Studies Series Paper No.9 1

INTRODUCTION
The growth of franchising in America and
Europe since the 1970s (Trutko, Trutko &
Kostecka, 1993, Dant, 1995, British Franchise
Association, 1995) has led to this business
form assuming increasing importance in a
number of academic debates, including the
fields of law, marketing, organisation theory,
services growth, etc. One of the most
interesting issues here is the potential of
franchising to provide self-employment
opportunities. After all, not only are most
franchisees small businesses, but so are most
franchisors. For instance, in Britain, half of the
franchise systems in existence in 1995 were
less than 5 years old and 43 per cent had 10
outlets or less (Purdy, Stanworth & Hatcliffe,
1996).
Franchises are based, ideally, on a ‘proven’
and ‘tried-and-tested’ recipe for business
success. The importance of replication and
standardisation which this implies would
appear to offer a short-lived license for
success in a world undergoing an ever
accelerating rate of change. Thus, the
question arises - how do franchise
organisations innovate and cope with change?
An adjunct to this question is the issue of the
role of franchisees who, whilst not
independent in the sense of the conventional
small business person, certainly do not see
themselves as conventional employees either,
and have certain expectations of participation
in the processes of which they are an integral
part.
In today’s environment of rapid technological
and market change, shortening product life
cycles and changing customer tastes (Ansoff,
1989), the strategic management of innovation
has attracted increased attention amongst
researchers, particularly pertaining to
innovation management and implementation
(Atuehene-Gima, 1993). For example, recent
strategic management discourse has been
emphatic on how sustainable competitive
advantages and superior economic rents
derive from the process of innovation (Kay,
1993; Pennings & Harianto, 1992; Friar &
Horwitch, 1985; Porter, 1985). Much of this
debate has concentrated on structural,
environmental and individual correlates of
innovation (Burns & Stalker, 1961; Kay &
2 International Franchise Research Centre - Special Studies Series Paper No.9
Willman, 1991), rather than developing an
eclectic or multi-dimensional model of the
correlates of innovation. Further, whilst this
stream of research and debate has added to
the level of understanding of the process of
innovation within organisations generally, few
texts have examined the causes of, and
barriers to, innovation within franchises
specifically. This article begins to redress this
issue. In particular, it suggests that franchisee
autonomy can have a major influence on rates
of franchise system innovation.
The article represents a distilled overview of
what the authors see as the key literature
relating to the over-ridingly important
challenge of franchise system innovation. It
does not claim to offer franchise practitioners
prescriptive check-lists and ‘quick-fix’
solutions to their everyday operational
problems, though it does point in the direction
of broader policy directives. It presents twelve
general propositions, distilled from a welter of
research conducted, largely, on operational
franchise systems and is intended as a step
forward in the task of developing a general
model of franchising.
INNOVATION
It has been inferred by Agency-Theorists
(Brickley & Dark, 1987; Krueger, 1991) that
franchising, in itself, is a form of innovation
deriving from resource constraints (Caves &
Murphy, 1976). This arises from two
perspectives. Initially, franchising permits the
parent company to overcome problems of
‘shirking’ and motivation, and thus is a method
of reducing the costs associated with
managing employees. Others argue that, of
ultimate significance to the franchisor, is that
franchising is a hybrid capital market (Jenson,
1989). Franchising not only entails
semi-ownership, without incurring costs, but
provides a constant stream of finance to the
franchisor.
There are a variety of definitions of innovation
and the relevant literature usually draws a
distinction between ‘innovation’ and ‘invention’
(Davis, 1991, and Clipson, 1991). ‘Invention’
usually implies ‘breakthrough’ (often of a
technical nature), whilst ‘innovation’ implies
successful commercial use of such an
invention, or some novel administrative use of
a previously established body of knowledge.
Obviously innovations can vary in scale and,
for the purposes of this paper, even very
modest innovations are of relevance since the
cumulative effects of continuous small-scale
innovation, multiplied across many business
units, can bestow significant competitive
advantage (Gold, 1981; Sahal, 1984 and Kay,
1993).
Technical innovation involves ideas for new
products, processes or services.
Administrative innovations permeate fields
such as recruitment policies, allocation of
resources and the social structure of
organisations. On occasions, the two may be
inextricably interlinked (Emery & Trist, 1969).
For instance, the early successes of the
McDonald brothers in their San Bernardino
fast food restaurant in the 1950s combined
strong elements of both technical and
administrative innovation.
Initially the McDonald brothers sought
technical innovations designed to save labour
and speed up the process of delivery to the
customer. They began inventing the essential
tools of the early fast-food industry (Love,
1986) such as the hand-held stainless steel
pump dispenser which required just a single
squeeze to dispense the required amount of
ketchup and mustard evenly onto a bun - a
variation of this device is still in use in
McDonald’s burger bars today. Boas & Chain
(1976), claimed:
"Each innovation made the service
more uniform; each refinement served
the cause of standardization, volume
and profit. Speed ... constituted the
essence of Hamburger Science."
Allied to this level of technical innovation came
a move from cooking being a personalised art
form towards the construction of a
factory-styled, ‘Fordist’, assembly-line working
like a ‘crack drill team’ (Love, 1986). Factory
production techniques and principles,
‘Fordism’ and ‘Taylorism’, had been around for
some time but their disciplined application to
an antiquated restaurant trade which had
traditionally operated on a largely ad hoc and
highly personalised basis was truly innovative
and initiated the industrialisation of service
(Levitt, 1976).
International Franchise Research Centre - Special Studies Series Paper No.9
To some degree, the cultural aspects of
managing franchisees are, in themselves,
highly relevant to innovation. The franchise
literature argues that effective management of
franchisees requires a multitude of skills and
an organisational culture which is suited to
franchising (Forward & Fulop, 1993).
Franchise management inevitably entails
administrative innovation since it requires
different skills to those required to manage
employees. For some, this is a potential
source of conflict since the franchisor is
unable to alter the organisational climate
sufficiently to encompass the rigours of
franchisee management and the changing
nature of the franchisor-franchisee
relationship over time.
THE GENERAL EXTERNAL ENVIRONMENT
Hall (1987), defines the environment as the
general and specific influences acting upon
the organisation. The general environment is
made up a series of socio-economic sub-
environments which influence entire societies
(Curran & Stanworth, 1983):
■ cultural,
■ economic,
■ political,
■ technological,
■ legal and
■ demographic
Yavas (1988), in a study of macro-economic
influences on fast-food restaurant franchising
in the USA, established that the key general
environmental factors affecting the expansion
of restaurant franchising were:
■ the shift of population from rural to urban
areas,
■ increased demand for food purchased
away from home due to an increase in
female employment,
■ increased demand for food purchased
away from home due to increased
3
 disposable income,
■ shortages of capital and high interest rates,
thus limiting the potential for ‘independent’
growth and encouraging the development
and growth of franchising using
franchisees’ capital and resources.
Factors such as the above can best be
operationalized in a paper such as the current
one by harnessing more specific contextual
environments such as those presented below.
SPECIFIC CONTEXTUAL EXTERNAL
ENVIRONMENTS
Specific environments are often termed task
or contextual environments (Thompson,
1967). These refer to the organisations,
groups and individuals with which the
organisation is in direct interaction. Analysis at
this level is probably most appropriate where
the organisation represents the key point of
focus. Dess & Beard (1984) suggest that
‘munificence’, ‘complexity’ and ‘dynamism’ are
widely considered as important dimensions of
the task environment affecting organisational
strategy (Aldrich, 1979).
Munificence
‘Munificence’ is an expression of surplus (or
scarcity) of resources (Castrogiovanni, 1991)
experienced by a franchise organisation.
Environmental ‘munificence’ can be seen to
affect franchising in various ways. For
example, prevailing conditions in employment
labour markets may increase or reduce the
numbers of potential franchisees searching for
franchise opportunities (Purdy & Stanworth,
1994). Support (or absence of support) by
government and banks for small businesses
and franchising could be construed as yet
another dimension here (Walker & Dynamism may occur, for instance, through
Greenstreet, 1991), as can the tendency for
financial institutions to lend to individuals who
can rely on the support of a well established
franchisor (Garceau, 1989; Stern & Stanworth,
1994). It can be argued that ‘scarcities’ in the
environment are likely to promote innovations.
For instance, as franchise companies
experience growing difficulties in recruiting
franchisees from traditional channels, they are
increasingly likely to spawn innovational
4 International Franchise Research Centre - Special Studies Series Paper No.9
initiatives in other areas of the labour market,
e.g., women, ethnic minorities, poorly
capitalised but otherwise suitable individuals,
etc.
Complexity
‘Complexity’ refers to the number of linkages
required to manage resources. Child (1972)
describes environmental ‘complexity’ as ‘the
heterogeneity and range of activities which are
relevant to an organisation’s operations’. The
level of complexity within franchising is often
strategically limited by the franchisor through
the contract. For example, in some franchises,
there is an obligation on franchisees to buy
goods connected with the essential object of
the franchise business exclusively from the
franchisor or designated suppliers (Adams &
Pritchard-Jones, 1990). Adams &
Pritchard-Jones (1990) observe that
franchisors often adopt this form of ‘tie’
because it serves the purposes of,
‘economising on franchisor quality-policing
costs’, thereby reducing complexity (Klein &
Saft, 1985). Thus, high levels of complexity
may be seen as a catalyst for innovations
designed to reduce levels to more
manageable proportions.
Dynamism
‘Dynamism’ is defined as change that is hard
to predict and which may cause the firm to
‘jump’ rather than follow a smooth trajectory
throughout its life cycle. Such ‘jumps’ may
have positive outcomes leading to increased
size (Aislabie, 1992), or downward leading to
failure (Scapens, Ryan & Fletcher, 1981).
Dynamism may affect a franchise as a result
of munificence changing in a beneficial or
harmful way for reasons beyond the control of
the firm.
the market entry of competitors. As franchises
operate within the confines of set geographic
territories, there may exist a necessity for the
franchisee to engage in price and non-price
competition. This may require alternative
operating methods and products to counter
the potential loss in market share.
Inter alia, it may be argued that if service
orientated business franchises are already
operating under stochastic conditions, the
operating environment should be one
receptive to innovation, since that innovation
will not be instigating a great movement in
established boundaries and skills. The
exigency caused by environmental dynamism
may require the franchisee to innovate either
through new product development or through
causing an alteration in the manner in which
the franchise is operated.
Consideration of these three specific
environment dimensions, ‘munificence’,
‘complexity’ and ‘dynamism’ suggests that all
can be seen as parameters of environmental
pressure for innovation. Hence three general
propositions may be proposed here:
❖ GENERAL PROPOSITION 1:
Levels of franchise system innovativeness
will correlate with the negative expression
of environmental ‘munificence’, i.e., levels
of ‘scarcity’.
❖ GENERAL PROPOSITION 2:
Levels of franchise system innovativeness
will correlate positively with levels of
environmental complexity.
❖ GENERAL PROPOSITION 3:
Levels of franchise system innovativeness
will correlate positively with levels of
environmental dynamism.
OPERATIONAL MANAGEMENT AND THE INTERNAL
ORGANISATIONAL ENVIRONMENT
Organisational Slack
‘Munificence’ was identified above as a
specific external environmental factor
influencing innovation. This was seen as a
measure of scarcity or surplus in
organisational sub-environments. Likewise,
and possibly related, levels of internal
resource scarcity or surplus (slack) may
influence an organisation’s options for
innovation. Bourgeois defines slack as:
“that cushion of actual or potential
resources which allows an organisation
to adapt successfully to internal
pressures for adjustment or to external
pressures for change in strategy with
International Franchise Research Centre - Special Studies Series Paper No.9
respect to the external environment.”
(1981)
Thus as slack resources in an organisation
increase, so does the probability of innovation
and adaptability to task environments (Cyert &
March, 1963). In the context of non-price
rivalry, Leiberman & Montgomery (1988)
argue that it is generally less costly to mimic a
competitor’s action than to undertake an
entirely new action. It may therefore be
hypothesised that firms with fewer slack
resources will be, on average, more likely to
imitate a rival’s actions rather than initiate their
own innovation. We are not saying here that
this will, of necessity, always be the case
since, on occasions, weaker rivals may be
motivated to leapfrog stronger competitors
with completely new innovations. Additionally,
this may be more likely in sectors where
innovation costs are relatively low. However, it
is in the nature of this paper to offer general
propositions as a basis for further debate.
Singh (1986) differentiates between two types
of slack: absorbed and unabsorbed. Whereas
absorbed slack indicates the slack absorbed
within the costs of organisation, unabsorbed
slack refers to uncommitted liquid resources.
However, in spite of the existence of
organisational slack within some franchisee
concerns, Price (1993) shows that UK fast
food franchisees have generally lower levels
of unabsorbed slack than franchisors.
Organisational Autonomy
‘Organisational autonomy’ can be measured
along many dimensions, including elements of
structure, centralised or organic decision
making, openness versus defensiveness, high
versus low trust management style, levels of
discretion, and tolerance or punishment of
innovational failure (Anthony, 1994; Pheysey,
1993). Thus, ceteris paribus, should the
franchisor develop a climate that nurtures and
encourages innovative behaviour, then this
may be expected to foster higher levels of
innovation on the part of both franchisor
employees and franchisees. Given that the
latter will substantially outnumber the former,
and have point-of-sale contact with
customers, their potential for innovation and
creativity is potentially high.
5
Cohen (McDonald’s vice president of
licensing), quoted in Shook & Shook (1993),
observed that much technical innovation, at
least, had been initiated by franchisees:
“Experimentation has been very healthy
for the system, and we encourage it
from our franchisees. Most of the major
break-throughs in our menu line were
made by franchisees and, in most
cases, they did it while working in
conjunction with us. In some cases,
particularly in the early days, we told
them not to do something, but because
the franchisees were aggressive
entrepreneurs, they did it anyway and
convinced us that it was a great idea.”
(1993) (emphases added)
Specific examples of franchisees’ propensity
to innovate according to the rigours of the
market are well documented. Love (1986) and
Shook & Shook (1993) both site the example
of McDonald’s franchisee Lou Groen who
owned a franchise in a predominantly Catholic
neighbourhood. On Fridays, the franchisee
found that his restaurant was not as busy as at
other times of the week since on that particular
day his customers ate fish. In order to maintain
sales volumes, Groen developed a
fish-sandwich. A year later, in 1964, the
“Filet-of-Fish” was introduced systemwide.
More recently, Ed Rensi, President and CEO
of McDonald’s USA, has said:
“Most of our new product ideas come
from franchisees. Jim Delligatti, an
owner/operator in Pittsburgh, came up
with the idea for the Big Mac. Initially,
he was rejected because we weren’t
interested in expanding the menu.
Subsequently, an employee
encouraged him to try it, and Pittsburgh
had tremendous sales results. Our Egg
Muffin came from an owner/operator in
California.” (Success Magazine, 1995)
Whilst the above examples of franchisee-led
innovation focus on product breakthroughs,
examples of administrative innovation are
also cited in the literature. For instance, Love
& Hoey (1990) have utilised the example of
multi-unit McDonald’s franchisee owner, Al
Boxley, who spent a disproportionate amount
6 International Franchise Research Centre - Special Studies Series Paper No.9
of time preparing employee work schedules.
He found that, by developing and using
computer software, he was able to lower costs
by reducing manning levels.
It is notable, however, that some of the most
cited examples of franchisee-led innovation
result from experimentation by franchisees
that was not only not sanctioned by
franchisors but was, on occasions, actually
discouraged. Dandridge & Falbe (1994) infer
that, to some extent, the management of
innovation requires the actual nurturing of
entrepreneurship within the franchise
system.
Past Experience of Innovation
Burns & Stalker (1961), in their seminal work
on the management of innovation, drew
attention to the problems of implementation
that result in innovations being technical
successes but organisational failures. Their
analyses stressed the complexity of
organisational systems and the social inertia
that damps out the effects of innovations as a
result of political agendas and lack of prior
experience in managing innovation and
smothering the process. If historical
experiences of the effects of innovation have
been negative, then future attitudes towards
innovation are, likewise, likely to be negative.
From the above discussion, three further
general propositions may be posited:
❖ GENERAL PROPOSITION 4:
Levels of franchise system innovativeness
will correlate positively with levels of
organisational ‘slack’.
❖ GENERAL PROPOSITION 5:
Levels of franchise system innovativeness
will correlate positively with levels of
organizational autonomy.
❖ GENERAL PROPOSITION 6:
Levels of current franchise system
innovativeness will correlate positively with
past experiences of success or failure in
the management of innovation.
Organisational Learning
Fundamental to the development of franchise
systems are the concepts of ‘technology
transfer’ and ‘learning organisations’ (Feuer,
1989). Here ‘technology’ is translated in broad
terms rather than its popular - that is physical
- manifestations (Kransberg & Pursell, 1967;
Pine, 1987). Merrill propounds that a more
adequate conception of a technology is that it
is:
“... a flexible repertoire of skills,
knowledge, and methods for attaining
desired results and avoiding failures
under varying circumstances.” (1968)
There are numerous perspectives of
technology transfer (Seurat, 1979; Hamel,
1991). Dahlman & Westphal (1983) identify
three levels of technology transfer, which it is
possible to align to a context of franchise
systems:
■ Level 1. Operating Capability:
the capability required to operate a
technology, for example, to run and
maintain a business unit (such as a quick
service restaurant)
■ Level 2. Investment Capability:
the capability required to create new
productive capacity (or new restaurants)
■ Level 3. Innovative Capability:
the ability to modify and improve methods
and products
All of these levels require different skills and
support from the franchisor. Levels 1 and 2
are relatively simple to achieve through on-
the-job and training. Historically, franchise
training was generally limited to providing the
franchisee with a manual. However, many
have become increasingly sophisticated in
how they develop franchisees operating ability
through the combined use of class-room and
hands-on techniques. Contemporary
franchisee training, however, is generally
performed at one of four basic training
facilities: a) at a full-service training centre; b)
at a training store; c) by a franchisee/trainer;
and/or d) a certified store manager/trainer.
International Franchise Research Centre - Special Studies Series Paper No.9
Arguably it is Level 3 which is the most difficult
to achieve since it requires imagination rather
than technical ability. To some degree, this is
also partially reliant on general environment
conditions, such as a culture and educational
system which encourages the willingness to
accept change. Whilst realising Level 3 may
also be a reflection of the range of experience,
age and educational background of the
franchisee, the quality of training in other
developing operational capability may also be
positively correlated to innovativeness.
McGuire observes that there are however
limitations in franchisee training programmes:
“Franchise training executives point out
that their principal difficulty is not
providing the technical or managerial
skills requisite to their operations, but in
changing the would-be franchisee’s
outlook from that of an hourly or
salaried employee to that of an
independent entrepreneur.” (1971)
Wolf et al (1990) expound that people actively
select appropriate skills or transfer knowledge
for a given occasion from their own individual
sources. This, they argue, involves defining or
recognising a problem as belonging to a
certain category. Thus, the wider the range of
situations the more likely they are to build up a
repertoire of very general problem types, and
‘schemata’ for dealing with these. The more
general the schemata, the more varied the
particular situations for which they have a
response.
Human Capital
Hambrick & Mason (1984) argue that a
manager’s business experience, education
and age (‘human capital’) are indicators of
his/her flexibility, capability and risk taking
propensities. They contend that if managers
have spent their careers within a single
industry or organisation, they will have a
limited knowledge base from which to analyse
and understand competitors and
environmental change. Similarly, they argue
that organisational innovation, or an
organisation’s openness to change, is
positively related to educational levels. Inter
alia, well educated franchisees will be more
likely to recognise opportunities for
improvement and new product or service
7
development than their less educated
counterparts. Finally, they suggest that
innovativeness is inversely related to age.
This suggests a possible paradox since, on
the one hand, youth is perceived to be a
positive correlate of innovation whilst, on the
other, experience has the same effect. UK
data (Stanworth, 1984a) indicates substantial
differences between different franchise
systems in terms of the educational
backgrounds of franchisees, their age of entry
into franchising and prior levels of commercial
experience. A key factor here is the level of
front end fees charged by different franchisor
systems. The higher the level of investment
required, the greater is the tendency for
access to be limited to those who have
achieved high earnings levels in previous
employment. In turn, such people tend to be
well educated and older, on average, than
entrants to lower entry cost franchisees.
The ‘human capital’ preferences of franchisors
may change at various stages in the life-cycle
of a given franchise system. We have cited
franchisees’ ‘human capital’ or previous
experience as a positive indicator of likely
levels of innovation. Research recently
conducted in the UK at the University of
Westminster indicates that managers of
mature franchise systems (10 years and over)
are notably more likely to prefer franchisees
without prior experience of self-employment
(Macmillan, 1996) or experience in the
operational line of the franchise, than those in
their formative period (first 4 years). This
situation could be interpreted as a perceived
need by early-stage franchisors to supplement
their own in-house expertise with that of
previously self-employed people from the
same business sector as the franchise. Older
franchise systems, on the other hand, may
deem the issue of organisational ‘control’ and
compliance of increasing importance, and thus
prefer franchisees from outside the sector in
question and without prior self-employment
experience.
The above discussion suggests evidence for
the following general propositions:
❖ GENERAL PROPOSITION 7:
A positive relationship will exist between
franchisor training investment and
franchisee innovativeness.
8 International Franchise Research Centre - Special Studies Series Paper No.9
❖ GENERAL PROPOSITION 8:
A positive relationship will exist between
levels of variety and achievement
established in a franchisees’ previous
career (‘human capital’) and
innovativeness as a franchisee.
❖ GENERAL PROPOSITION 9:
Franchisors will adjust their franchisee
recruitment priorities over time in line with
their perceived needs for franchisee
innovation.
The Franchise Relationship
Any understanding of the role of franchisee
autonomy as a correlate of innovation has to
be founded on a clear understanding of the
domain of both the franchisee and franchisor.
Indeed, it is arguable that the degree of
franchisee autonomy has a pivotal position in
determining the implementation and latitude to
innovate. It would be expected that, in order to
enhance the level of franchisee
innovativeness, the franchisee would need
sufficient autonomy in order to respond to the
rigours of the task environment. As Doz (1988)
indicates, reduced autonomy may curtail
innovative output. Extant research concerning
franchisor-franchisee relations has yielded a
rich debate around the issue of autonomy
(Heide, 1994).
Felstead (1991; 1993) has examined the
distribution of power and control within the
franchise relationship. After a detailed study of
franchise contracts, he argues that the
franchisor controls the relationship through the
ownership of the key factors of production and
the intangible assets. Such control is evident
and exercised within three key aspects of the
franchise relationship:
“First, despite operating without close
and direct supervision, franchisees are
required to operate within procedures
laid down and often subject to unilateral
change. Moreover, franchisees are
sometimes committed to adhere to
franchisor-set performance targets,
and, in any case, to give the aim of the
franchisor (turnover maximisation)
primacy in the running of the business.
 Secondly, while they appropriate the
profits (and losses) of the business,
they do so only after they have made
turnover payments to the franchisor.
Thirdly, although franchisees buy or
lease much of the physical business
apparatus, some parts remain in the
hands of the franchisor, and some have
franchisor-imposed restrictions on their
use both during and after the currency
of the agreement. Furthermore,
franchisees have no ownership rights in
the intangible assets - they simply
‘borrow’ the business idea, trading
name and/or format.” (1993)
Housden (1984) suggests that the franchisor
may well restrict the franchisee’s ability to
respond to local demand conditions through
the control of key marketing variables
(advertising, promotion, territory etc.). Several
studies establish that franchisees often
complain about the controls on services
provided by the franchisors and the lack of
autonomy in decision making (Knight, 1984;
Ayling, 1987; Withane, 1991). According to
this research, some franchisees feel that they
are not manifesting their desired level of
entrepreneurial spirit as they are provided too
little opportunity to participate in strategy
formulation for their businesses.
However, Stanworth et al (1984b) differentiate
between formal and operational franchisee
autonomy, and establish the existence of
greater levels of operational autonomy than
are indicated by the formal contract:
“...at an everyday level, operational
autonomy is much more evenly spread
between franchisors and franchisees
than is suggested by consideration of
the formal level alone. There are clear
limits to the control franchisors can
exercise physically or normatively at
the operational level.” (1984)
In Britain recently, research involving the
British license-holder of a large and successful
US franchise system revealed that new
franchisees often relied upon advice from
other franchisees, rather than the franchisor,
in order to safeguard themselves against
deficiencies and inaccuracies in the franchise
manual, which would otherwise prove costly.
International Franchise Research Centre - Special Studies Series Paper No.9
When this situation eventually came to the
notice of the franchisor, our respondent
instigated a competition urging franchisees to
notify head-office of such operational
innovations. Though many franchisees
acknowledged having made such innovations,
and often having shared them with other
franchisees, only 3 subsequently co-operated
in the franchisor’s attempts to ‘gain ownership’
of them. It is possible that this is close to the
‘norm’, rather than being an exception, and
indicates the scale of the potential for the
release of local innovative flair in a
collaborative environment. It might be
suggested here that the degree to which
franchisees are willing to share their own
innovations will be a function of perceptions of
the quality of relationships with the franchisor.
Joint Representative Committees
It can be argued that permitting franchisees to
participate in shaping management policy-
making via, say, joint representative
committees, may help to solidify the unity of
the franchise system, not all franchise
companies have any definite machinery for
such participation. A recent survey of
franchisors in Britain found them almost
equally divided on this (BFA, 1995).
Franchisee participation in decision-making
process has a number of advantages. The
franchisee is often the closest to consumers
and most aware of their needs, and can
therefore direct innovative effort. Also,
franchisee participation may increase the
acceptance of decisions as they will be more
aware of the factors that led to the decision.
Thus, the more the franchise organisation is
viewed as a set of coupled units, where joint
actions rest on negotiations, the more any
strategy for the encouragement and
implementation of innovation must emphasise
the need to mobilise coalition (Weick, 1976).
Technical versus Administrative Innovation
Daft (1978) construes the organisation as
comprising two cores: an administrative core
and technical core. He argues that each core
has its own sphere of expertise. In the
innovation process, technical innovations will
tend to derive from the technical core, whilst
administrative ones will derive from the
administrative core. Within the context of
9
 Figure 1 - Correlates of Innovation

General External Environment

Economic, Political, Cultural Systems, Legal,
Demographic, Technological Trends &
Institutions

Specific/Contextual
External Environment
Scarcity, Complexity, Dynamism

Internal Organisational Environment

Slack, Autonomy, Learning,
Human Capital, Recruitment Policies &
The Franchise Relationship

Innovation

franchise businesses, franchisors may be general propositions are suggested:

equated to the administrative core of the
organisation since they are orientated to
governance issues such as planning (Barney
& Ouchi, 1986) and monitoring the system
(Rubin, 1990). It may also be observed that,
where there are dual-systems of distribution
and the franchisor operates company-owned
units, that the franchisor has access to a
technical core other than franchisees.
From the above discussion, the following
❖ GENERAL PROPOSITION 10:
Franchisees will generally experience
sufficient functional autonomy to facilitate
their meaningful participation in the
process of franchise innovation to the
extent that ‘ownership’ of innovations may
be withheld from franchisors.
❖ GENERAL PROPOSITION 11:
Franchisors will devise a range of

10 International Franchise Research Centre - Special Studies Series Paper No.9

 administrative procedures over time as an
aid to gaining access to the fruits of
franchisee ideas and innovations.
❖ GENERAL PROPOSITION 12:
Franchisee innovativeness will tend to be
oriented towards technical rather than
administrative issues.
DISCUSSION
This article has attempted to identify key
correlates of innovation in franchising and
develop them into a general model (See
Figure 1). We do not assert that our analysis
is totally comprehensive but, rather, a step
towards a better understanding of franchising
at a general level (Curran & Stanworth, 1983)
and, hopefully, a catalyst and platform for
further debate.
It is a truism that franchise organisations do
survive in fast-changing market places and
this, in itself, is testament to an
institutionalised ability to innovate and adapt.
In tandem with a stress upon predictable
bureaucratic structures, detailed operating
manuals and prescribed methods of operation,
franchise organisations tend to operate
methods of harnessing the innovative potential
of franchisees. Field visitors, consultants,
‘mystery customers’, workshops, in-house
newsheets, plus normal everyday contacts
and communications, all act as filters for
ideas.
The mere decision by business owners to
expand their business via the use of
franchising may be deemed highly innovative,
judged from a human resource, financial or
ownership point of view. However, despite the
franchisor’s initial innovative effort in adopting
franchising as an organisational form,
corporate survival at different stages of the
development of a business, market or industry
requires innovative change. Given the pivotal
position of the franchisee in terms of nearness
to customers, the franchisee’s role in
innovation can be crucial.
Any general theory of franchising conducted at
the societal level would focus upon what we
have termed the ‘general environment’,
stressing factors such as cultural, economic
International Franchise Research Centre - Special Studies Series Paper No.9
and political institutions plus technological,
legal and demographic changes. Constructing
a theory of franchising with the business
franchise system as the key focus, we began
by conceptualising three specific external
organisational environments and stressed the
importance of ‘scarcity’, ‘complexity’ and
‘dynamism’ as correlates of innovation.
We subsequently stressed the importance of a
degree of organisational ‘slack’, autonomy and
previous successes and failures in innovation
as factors influencing innovation success in
the future. Similarly, levels of franchisee
training provided by the franchisor, plus levels
of available ‘human capital’, i.e., quality and
quantity of past achievements and
experiences were posited as important factors
influencing likely levels of innovation. The
interesting issue of ‘ownership’ and transfer of
operational innovations established by
franchisees and possibly unknown to the
franchisor was raised and the relationship
challenges which that involves if the
innovative potential of the franchisee is to be
harnessed.
Writers such as Mintzberg (1983), Burns &
Stalker (1961) and Kanter (1985) have offered
fairly solid evidence that organically structured
organisations are best equipped to cope with
innovation and change. Mintzberg sees
‘adhocracy’ as the most creative and
innovative organisational form. Yet franchises
tend to be typically organised into more
hierarchical structures, that is, along the lines
of what Mintzberg terms a ‘machine
bureaucracy’. Consistent with this view are
frequent claims that ‘franchisors seek
replication not innovation and conformity not
creativity’ from their franchisees (English &
Hoy, 1995). Paradoxically, however, it is this
homogeneity which may provide both speed of
diffusion and ease of implementation of an
innovation within a franchise system.
Johnston & Leenders (1990) indicate that
operations in different facilities of the same
company may be standardised, and therefore
share common problems and opportunities for
improvement with even minor innovations. At
an every-day level, the reality appears to be
often one facilitating innovative expression of
franchisee autonomy.
Pinchot (1986) has shown that
11
entrepreneurship and innovation can still
function within more mechanistic structures.
What Pinchot terms ‘intrapreneurs’
(entrepreneurs within corporations), manage
to innovate in structured environments, often
by creating a pool of adhocratically organised
space within a broader mechanistic whole -
the presence of powerful sponsors/protectors
or mentors can be vital here.
Such strategies are open to franchisees,
particularly powerful franchisees with high
levels of financial turnover and well staffed
businesses allowing them time away from day-
to-day pressures. English & Hoy (1995) have
examined the notion of the franchisees as
innovating entrepreneurs and suggest that
multi-unit franchisees (as are common in, for
instance, restaurant franchises) may well be a
particularly fruitful territory in which to
concentrate our search for franchisee
entrepreneurs/innovators.
In this article, we have presented a range of
propositions, grounded in the literature, which
we feel have some general validity. These
general propositions are not offered as laws,
ultimately governing organisational outcomes
with total certainty but, rather, as general
guides to correlates of innovation in
franchising. It will be the task of future
researchers to subsequently add precision to
each of these propositions and ground them
more deeply in the various sectors and niches
of the franchise industry.
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15
AUTHORS
John Stanworth is the director of the
International Franchise Research Centre
and has been engaged in research into
franchising since the mid-1970s. He also leads
the Future of Work Research Group, based at
the University of Westminster, which has a
record of specialist research in Teleworking,
Small Business Development and Human
Resource Management. Studies have been
undertaken for many clients, including The
Department of Trade & Industry, The
Department for Education and The Economic
& Social Research Council.
Stuart Price, David Purdy and Nick Zafiris
are members of the London Management
Centre, University of Westminster.
Alessandro Gandolfo is based at the
University of Pisa, Italy.
16 International Franchise Research Centre - Special Studies Series Paper No.9
INTERNATIONAL FRANCHISE RESEARCH CENTRE
The International Franchise Research Centre
(I.F.R.C.) is committed to improving the
understanding of franchising. This is achieved
by the publication of impartial research and by
the encouragement of informed debate.
Membership is suitable for anyone with an
interest in franchising and further details are
available from the address on the rear cover.
SPECIAL STUDIES SERIES
Papers in the Special Studies Series are
supplied free of charge to I.F.R.C. members
and are published a minimum of four times a
year. They report upon a range of issues
which are felt to be of interest to the
franchising community. Subject matter
includes the findings of surveys of franchisors,
franchisees, and potential franchisees, and
also special interest matters, such as finance
for franchising.
No.1 The Blenheim/University of
Westminster Franchise Survey:
Spring 1993
No.2 Improving Small Business Survival
Rates via Franchising: The Role of the
Banks in Europe
No.3 Targetting Potential Franchisees:
Industry Sector Backgrounds and
Declared Areas of Interest
No.4 The Impact of Franchising on the
Development Prospects of Small &
Medium-sized Enterprises (SMEs) in
Europe
No.5 The Blenheim/University of
Westminster Franchise Survey: A
Comparison of UK and US Data.
No.6 Developing a Diagnostic Questionnaire
as an Aid to Franchisee Selection
No.7 Franchising as a Source of
Technology-transfer to Developing
Economies
No.8 Aspects of Franchisee Recruitment