Human resource management challenges facing franchise businesses
| Date | 01 November 2019 |
| Published date | 01 November 2019 |
| Pages | 104-124 |
| DOI | https://doi.org/10.1108/PR-04-2018-0139 |
| Author | Mohammadali Zolfagharian,Iman Naderi |
| Subject Matter | HR & organizational behaviour,Global HRM |
Human resource management
challenges facing
franchise businesses
Mohammadali Zolfagharian
Department of Marketing,
Bowling Green State University, Bowling Green, Ohio, USA, and
Iman Naderi
Department of Marketing, Fairfield University,
Fairfield, Connecticut, USA
Abstract
Purpose –The purpose of this paper is to extend the current understanding of human resource management
(HRM) challenges facing franchise businesses.
Design/methodology/approach –A qualitative investigation, including eight in-depth interviews and
66 semi-structured interviews with various franchise stakeholders as well as 42 participant observations,was
conducted in North America to answer the research questions.
Findings –Six major conclusions emerged from the conceptual and empirical work. The findings, for
instance, reveal that human resources in franchise businesses lacks in motivation and skills, and franchisees’
distance from the ideal mix of autonomy and risk-aversion determines psychological and financial distress in
the system.
Practical implications –The findings suggest that when firms choose the franchising path as a means of
leapfrogging resource constraints, they will experience new and more challenging HRM complications for
several reasons. Therefore, decision-makers at both franchisor and franchisee firms need to address these
new HRM challenges proactively by recognizing their possibility and emergence and by engaging in
cooperative learning with one another.
Originality/value –While HRM practices can “make or break”franchise systems, some important research
questions still remain unanswered in this context. In an attempt to narrow this gap, and using a qualitative
approach, this work identifies and classifies the key HRM challenges facing the franchise industry. Based on
the finding, a conceptual model is proposed and discussed.
Keywords Qualitative, Human resource management, Autonomy, Smallto Medium Size Enterprises (SME),
Franchise, Motivation and skills, Risk-aversion
Paper type Research paper
1. Introduction
Franchising is a form of business by which the owner (franchisor) of a product, service or
method obtains distribution through affiliated dealers (franchisees). Franchising plays a
significant role in economic development (Carlson et al., 2006; Dant, 2008; Elango and Fried,
1997; Michael, 2014). In the USA alone, the number of franchise establishments is estimated
to grow by 1.9 percent to 759,000 locations in 2018 (International Franchise Association,
2018). Franchise industry overall supports nearly 18m jobs while direct franchise
employment is expected to increase to 9.1m workers, outpacing economy-wide employment
growth. Further, franchise businesses have directly and indirectly contributed $2.1 trillion
in to the US economy, then the direct output of franchise businesses in nominal dollars is
projected to increase 6.2 percent in 2018 to $757bn. Moreover, the gross domestic product
(GDP) of the franchise sector is expected to increase by 6.1 percent to $451bn in 2018,
contributing approximately 3 percent of US GDP in nominal dollars.
Generally speaking, in a franchise relationships, one party (the franchiser) grants
another party (the franchisee) the right to use its trademark or brand name as well as certain
business systems and processes, to produce and market a good or service according to
Personnel Review
Vol. 49 No. 1, 2020
pp. 104-124
© Emerald PublishingLimited
0048-3486
DOI 10.1108/PR-04-2018-0139
Received 18 April 2018
Revised 15 November 2018
Accepted 19 May 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0048-3486.htm
104
PR
49,1
certain specifications in return for a monetary consideration. The franchisee usually pays a
one-time franchise fee plus a percentage of sales revenue as royalty, and gains immediate
name recognition, tried and tested products, standard building design and décor, detailed
techniques in running and promoting the business, and ongoing help in promoting and
upgrading of the products. A franchise relationship is legally bound by a contract between a
franchisor and a franchisee knows as a “franchise agreement.”In a franchise agreement,
franchisor and franchisee are legally independent entities (i.e. businesspersons), and
franchisees are solely responsible for the management and successful operation of their own
businesses. It is important to note that a franchise contract is temporary, akin to a lease or
rental of a business, and does not signify business ownership by the franchisee.
While all small businesses rely on their employees to succeed, franchise businesses,
due to their hybrid form of organization (both a combination of hierarchical and
market governance and a strong contractual orientation), may even face more substantial
challenges in devising and implementing their human resource management (HRM)
policies and practices. As noted, franchise industry employs a sizeable portion of
human resources in developed and developing countries, and the sheer number of people
employed or expected to be employed by franchisors and franchisees qualifies these
enterprises as a central context of exploration for HRM scholars and practitioners
alike. While previous research suggests that there is considerable diversity amongst
small- and medium-sized enterprises (SMEs) in their use of HR practices (Cassell et al.,
2002), HRM is still regarded as an important function and a key determinant of success in
SMEs (Sels et al., 2006; Teo et al., 2011; Zheng et al., 2009), especially in retailing and
service industries (e.g. Brand and Croonen, 2010; de Kok et al., 2006). Further, HRM has
been introduced as an essential indicator of growthpotential in franchise firms since
their inception (Oxenfeldt and Kelly, 1968). Although HRM practices might not be
directly visible to the end-users of products and services, they can “make or break”
franchise systems in their role as a key managerial and operational business
infrastructure (Brand and Croonen, 2010).
Several studies have investigated different aspects of HRM in franchising contexts. For
instance, Ji and Weil (2015) examined how franchising affects compliance and found that
franchised outlets have far higher levelsof noncompliance than comparable company-owned
establishments. Freedman and Kosová (2012) examined the relationship between employee
supervision and compensation in the hotel industry, in which many chains have both
company managed and franchised properties. In a study within the automotive franchise,
Truss (2004) investigated how inter-firm relationshipsbetween a franchisor and its franchisee
can both directlyand indirectly influence the employees’experiences of HRMat the franchise
unit. Litz andStewart (2000) tested the effectsof employee training andfranchise membership
on small firm performance and found that performance improvement made by franchisees’
training programs was not significantly better than that of independent stores. In another
study, Weaven and Herington (2007) found that less mature and smaller franchise networks
rely upon predominantly single unit franchising strategies and less sophisticated HRM
practices whereas more mature systems use hybridized franchising forms and sophisticated
HRM strategiesto accommodate system-wideadaptation and systemuniformity. Similarly,de
Kok and Uhlaner’s(2001) study revealed that smallcompanies that work closely witha larger
company (e.g.as a supplier, customer or franchiser)usually implement more formalized HRM
practices than those companies that lack such an association. Further, Kellner et al. (2014)
explored the degree of HRM support provided to franchisees and found that risk-driven
strategic choices by franchisors influence the strength of support provided; if the goal is to
avoid any liability or legal action, the franchisor minimizes involvement with franchisees in
HR matters, but when the main goal is to protect the brand, the franchisor follows a
highly centralized approach and offers more comprehensive HR support to franchisees.
105
HRM
challenges
facing franchise
businesses
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