Can Franchisors Balance Adaptation and Standardization? Toward Theorizing Ambidexterity in Franchisors

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1 Can Franchisors Balance Adaptation and Standardization? Toward Theorizing Ambidexterity in Franchisors Fatemeh Joharianzadeh 1 Master of Science, Faculty of Entrepreneurship, University of Tehran, Tehran, Iran Kamal Sakhdari Assistant Professor, Faculty of Entrepreneurship, University of Tehran, Tehran, Iran Babak Ziyae Assistant Professor, Faculty of Entrepreneurship, University of Tehran, Tehran, Iran Mohsen Azari Aghviyeh Master of Science, Faculty of Entrepreneurship, University of Tehran, Tehran, Iran Abstract Franchising is a business model repeated in different contexts; and indeed, it supposed to represent the same form of a known product and brand in different places; therefore, it requires observing a series of standards so that what given to a customer in a region is the same very global quality. Thus, emphasizing on the requirement of standardization in franchising contrasted with different geographical nature of market franchisees. Therefore, what is important in such situations is the franchisor capability in balancing two opposing activities of standardization and adapting to the environment. In organizational literature, creating the balance between opposing activities and indeed, simultaneously carrying out inconsistent activities referred as organizational ambidexterity. This paper reviews literature of franchisors organizational ambidexterity and organizational ambidexterity effect on performance. This is a review research in term of objective, which regularly studies ambidexterity issue through structured searching method. Research data collected through searching academic 1 Corresponding author s f.joharianzadeh@gmail.com 1278

2 databases, studies and web sources. Research results and reviewing literature revealed that Alliance portfolio management capability, plural form, market diversity, as well as strategic orientation influence franchisors organizational ambidexterity. Keywords: Organizational ambidexterity, franchisor, standardization, adaptation. Cite this article: Joharianzadeh, F., Sakhdari, K., Ziyae, B., & Aghvieh, M. A. (2015). Can Franchisors Balance Adaptation and Standardization? Toward Theorizing Ambidexterity in Franchisors. International Journal of Management, Accounting and Economics, 2(10), Introduction The need to balance between standardization and adaptation is one of the challenges franchisor business entrepreneurs face. In fact, franchising formed based on a standardization idea in different markets (Dada, Watson, and Kirby, 2011). Standardization and uniformity is the basic of franchising (Cox and Mason, 2007). If franchisee tries to implement personal interests in this system, it may be isolated from the franchisor activity trend (Baucus et al., 1996), which is considered as a risk to franchisor (Boulay, 2008). However, the context of different local markets in which the franchisee initiates requires some flexibility to meet market needs and create innovation opportunities (Falbe et al, 1998). Therefore, emphasizing on franchising need to standardization is inconsistent with different geographical nature of franchisees markets (Cox and Mason, 2007; Pizanti and Lerner, 2003). A normal franchise system should be more completed over time by environmental changes (Kaufmann and Eroglu, 1998). Franchising is one of the fastest growing business samples within the last 50 years (DiPietro et al, 2007) and is increasingly turning into a critical means of entrepreneurial wealth creation; further, a large and growing part of retailing and servicing businesses are devoted to franchising (Sorenson and Sorensen, 2001). According to report of the first Iran s Franchise Conference and Expo, our country is properly placed in Middle East owning manufacturing industries in the fields of automobile manufacturing, transportation, house appliances, food and agricultural products, pharmaceutical, and petrochemical; in addition, it can be an excellent location for developing franchisor s businesses. Furthermore, Iran food industry since restaurants in Tehran, outdoor eating culture, widely using of restaurants as a hobby due to lack of other entertainments, as well as high per capita consumption in this industry may be an excellent potential market for franchises. In spite of significance of franchise businesses, few studies conducted on such businesses in Iran. The present paper studied one challenge of these businesses i.e. standardization/ adaptation and investigated effective factors of franchisors ambidexterity by literature review. 1279

3 Theoretical basics and research background To date, many growing studies conducted on organizational ambidexterity and the increasingly significance in achieving organizational competitive advantage (Junni, Sarala, Taras, and Tarba, 2013). The main issue dealt with in organizational ambidexterity is the organization capability of coordinating between conflicting demands, which leads to enhanced short-term and long-term organizational performance (Rothaermel and Alexandre, 2009). What makes a contradiction in franchise companies is the balance between two contradictory standardization and adaptation activities. The important point of this research is franchisors ambidexterity in using the two strategies of standardization and adaptation. Franchisor requires balancing large scale saving attained by system standardization and micro scale saving resulted from adapting with local market (Kaufmann and Eroglu, 1999). Probably, one of the most difficult managerial issues the franchisees encounter is defining business limitation. In other word, establishing a necessary level of uniformity for system to achieve saving in term of scale and at the same time avoiding the risk of disregarding (ignoring) adaptation with local markets (Kaufmann and Eroglu, 1999). This ability of organization coordinating opposing demands, which leads to enhanced short- and long-term organizational performance, is called organizational ambidexterity (Rothaermel and Alexandre, 2009). Organizational ambidexterity defined as organization ability in creating simultaneous balance among different activities in asymmetric conditions (Rothaermel and Alexandre, 2009). Franchising Franchising relies on repeating a tested achievement (success) (Roh, 2002). In recent decades, it turned into one of the fastest growing businesses and attracted large attentions due to creating occupational opportunities, downsizing and economic development (Dada, Watson and Kirby, 2010; Falbe, Dandridge and Kumar, 1999). Franchising is a legal agreement whereby a person entitled the right of selling products or services of a firm in a particular region (Green, 2007; 83). Thus, franchising ensures a contract agreement between the main actor (franchisor) and an agent (franchisee) to obtain reciprocal interests of a business established by the main actor (at the cost of given paying from franchisee to the franchisor) (Ahmadpour and Ahmadiyan rad, 2011; 61). Organizational ambidexterity The concept of ambidexterity was initially introduced by Duncen (1967) and March (1991) in organizational learning literature. An ambidexter organization can create a high level of balance between utilization (learning through local researches, experimental refining, and reusing the current knowledge) and exploration (learning through the process of coordinated diversity, planned experiments and game) (Levinthal and March, 1993; March, 1991). Organizational ambidexterity defined as an organizational capability in alignment and efficiency of responding market demands and at the same time adapting with environmental changes. In fact, ambidexterity mostly applied to describe organization ability in simultaneously doing different activities such as utilization and 1280

4 exploration, efficiency and flexibility, uniformity and adaptation (Gibson, C. B., & Birkinshaw, J. 2004). Standardization versus adaptation Standardization perspective views globalization as a driving force for more similar market, higher technologic incorporation, as well as larger coordination in customers needs, preferences and desires (Levitt, 1983). Such strategy has several merits including a. larger saving, particularly in activities such as research and development, production, and marketing; b. presenting a steady image brand; and c. complexity of reduced management due to better controlling and coordination of international activities (Levitt, 1983; Douglas and Craig, 1986). Proponents of adaptation perspective agree that despite increasingly tendency toward globalization, intercountries discrepancies in term of consumer needs, regulations, and technology development are still large; therefore, it is necessary to have a marketing strategy proper to any foreign (external) market diverse conditions (Terpstra and Sarathy, 2000). Thus, one challenge of the organization is that which of these strategies depending on the conditions are much possible and accepted by the organization. Ambidexterity in franchise businesses The nature of franchising is simultaneously scale saving relative to large systems and utilizing advantages of micro and local operations (Kaufmann and Eroglu, 1999). A franchise business entrepreneur as the creator and maker of a unique business is responsible for the efficient management of a complex system consisting of several independent business owners. Probably one of the most difficult managerial issues the franchisees encountered is what is the limitation of union and uniformity? When the standardization stops and effective environmental adaptation initiates? And when this local adaptation turns into system decline? Table 1 Summary of standardization/ adaptation of franchisors literature Row Scholar(s) Year Function Results 1 Agrawal Szymanski, Bharadwaj,aradarajan Kaufmann and Eroglu Dant and Gundelach 1999 Adaptation Adaptation Adaptation authority/ attachment It describes the standardization/ adaptation challenge in advertising international and multi-natural businesses. It deals with the challenge of standardization and adaptation in firm s marketing strategy. It deals with the consistency of franchise concept with local market in order to contribute in the system by managerial, information and financial sources entering to the chain. It explains the challenge of standardization from franchisor view and the authority tendency of the franchisee. 1281

5 Row Scholar(s) Year Function Results 5 Pizanti and Lerner 2003 Control/ authority Gibson and Birkinshaw Raisch and Birkinshaw Junni, Sarala,Taras, and Tarba Pardo-del-Val et al Kang 2014 Adaptation Adaptation Exploration/ utilization flexibility Adaptation Effective factors of organizational ambidexterity It concentrated on control and authority as multidimensional concepts by using agent and exchange theories; further, it stated several facilities for balancing these two. This research studied uniformity and adaptation of organizational ambidexterity and mentioned a series of effective factors such as attraction, discipline, support and trust in the area of ambidexterity. Further, ambidexterity facilitated the relation between these fields and performance. The scholars identified structure, context, and leadership factors as ambidexterity antecedents. This research studies the relation between organizational ambidexterity and performance through multidimensional analysis of earlier studies. They found out the positive, strong relation between organizational ambidexterity and performance and indicated that context factors and principle choices modifies this relation. Deal with solving the challenge between standardization and flexibility in franchise businesses. Ambidexterity in franchise chains studied through the two mechanisms of distinction and integration (uniformity) to achieve different abilities provided by franchise system. The majority of prior studies concentrated on different elements (Siggelkow and Levinthal, 2003) and few studies investigated effective factors of organizational ambidexterity rather more focused on organizational ambidexterity from exploration and exploitation perspective. No studies conducted from standardization/ adaptation point of view, which is largely discussed in franchise businesses. In last decades, researchers began studying organizational ambidexterity antecedents. Studies show that factors of organizational structure, behavioral contexts, leadership processes and senior managers team are the enhancers of ambidexterity. These factors are summarized in the following table. 1282

6 Table 2 Summarized literature review of ambidexterity effective factors Researcher Year Methodology Raisch and Birkinshaw 2008 Review Simsek, Z Review Simsek, Z Review Datta, A Qualitative Birkinshaw, J., & Gupta, K. Bandariyan 2014 Moradi, Ibrahim pour and Mombeini 2013 Review 2014 Descriptivelibrary Descriptivelibrary Chang, Y. Y Quantitative Effective factors of organizational ambidexterity (exploration/utilization perspective) Structural factors Contextual factors Leadership factors Organizational level factors Inter-companies level factors Environmental level factors Binary structures Organizational context Senior management team Behavioral context Binary structure Management team Managerial abilities Multilevel construct Contextual factors Contextual Area separation Temporal separation Structural separation Consecutive approach Structural approach Contextual approach Behavioral factors related to human resource and high performance working systems (HPWS) Effective factors of franchisors organizational ambidexterity According to reviewing earlier literature, the following factors identified as effective factors of franchisors organizational ambidexterity. Plural form Plural form in franchise businesses referred as simultaneously having of owned units and franchise units applied at system level to establish the unity and obtain matched variant markets (Bradach, 1997; 276). Harriga (1984) stated that since ownership structures whether franchise units or owned units have their specific managerial interests. Franchise systems tend to simultaneously invest on both these ownerships. Dant and Kaufmann (2003) also believe that existence of any of the two forms of system ownership i.e. owned units and franchise units (plural form), complements the other and helps managing the other form through providing an 1283

7 alternative for management unit and information insight, which is merely accessed in one of the two forms. It seems that a combined system (a strategic combination of owned units and franchise units or plural form) is the ideal choice of efficient systems seeking for benefiting from net advantages of both systems. Alliance portfolio management capability Alliance portfolio management capability includes organizational processes that proactively led to using the opportunities of union and relation management and coordinates the knowledge and strategy in the whole portfolio (Sarkar, 2003). However, interests of intraorganization union were largely interested, evidences show that companies can better create value through using alliances. Sun (2013) also introduced the new concept of alliance ambidexterity. It referred to forming a union or network focused on utilizing each other existing knowledge and at the same time new exploration of each other (Im and Rai, 2008). Contract flexibility level Franchise contract identifies each party responsibility, determines accepted level of services and sets the penalties of unfulfilled obligations. In addition, it ensures supports and guarantees for contract parties (Boulay, 2010). The contract flexibility measured based on the level of hardness, softness or flexibility, accuracy, and precision, and predetermined materials of the contract content for each involved party. Therefore, it seems that the contracts with adequate flexibilities and less precision are more proper for simultaneous standardization and adaptation activities and ambidexterity. Growth orientation Growth orientation embraces the organization tendency toward fast and large growth. In experimental literature of new business stated that many individuals found and manage their companies for reasons other than profit maximization or large growth (Davidsson, 1989; Storey, 1994) and they show no tendency toward growth. One major reason may be lack of knowledge of growth potential capabilities (Scott and Rosa, 1996). As a result, firms behaviors differ depending on firm growth trend. In other word, growth motivation is the most significant predictor of the way, duration and concentration of each action (Wiklund, Davidsson, and Delmar, 2003). A company uninterested in growth, it less probably acts based on innovation or using knowledge-based capabilities. The companies seeking for growth are more proactive to innovation (Mckelvie, 2007). Growth trend directly and largely influences the performance of the expected and real innovation. Since franchising considered as a growth strategy for companies (Gillis and Castrogiovanni, 2012) and using many of growth opportunities requires adaptation of local requirements and considering preferences of market groups and corners, it seems that the firms with higher growth tendency must have higher ambidexterity to achieve the objective of fast and large growth. 1284

8 Market diversity It refers to the number of different geographical areas, ie. Domestic markets( like different states) and foreign and international markets, where franchise business operate. The more the entrance of franchise business into different markets and specialy international markets, then they will face more different customers with different tastes and preferences. Therefore, when a franchise company enters into different and diverse markets, it seems that the need and possibility of using both of standardization and adaptation will be more and the organization will become more ambidexterous(peng, 2009). Data collection This paper reviewed franchisors organizational ambidexterity literature. This is a review research in term of objective that regularly studies ambidexterity by using a structured searching method. Research data were collected by searching academic databases, studies and web sources. Discussion and conclusion However, franchise companies face the simultaneous challenge of standardization and local adaptation for utilizing both of these approaches, little insight exists in franchising literature about how organizations can properly balance these approaches. This research identified the factors that increase franchisors ambidexterity for simultaneous benefiting of standardization and adaptation by using ambidexterity literature of strategic management and organizational entrepreneurship. Results of literature review show that companies with plural form have higher ambidexterity capability. This means that franchise companies benefit both advantages by establishing owned units and representative units. Previous literature also confirmed the positive effect of alliance portfolio management capability on organizational ambidexterity. Existing of alliance portfolio management capability in franchise businesses with various networks of franchisees, enables franchisors to apply their capabilities, knowledge of communication and branches for realizing ambidexterity. Moreover, earlier research results also demonstrate that high growth tendency causes increased level of ambidexterity in franchisors. It means that the companies intended to faster grow, use both strategies of standardization and adaptation to achieve their objectives. Furthermore, reviewing prior studies confirms the effect of markets diversity and ambidexterity. Since franchising considered as one of business development methods and regarding that operating in different places and markets is inherently inevitable in franchise businesses, they deal with different needs, preferences and cultures. Therefore, the more diversity in the market, the higher the need to ambidexterity. Moreover, researchers implicitly mentioned the relation between contract flexibility and organizational ambidexterity. Therefore following recommendations could be effective for theorizing and testing of the factors affecting organizational ambidexterity in the franchising context and would be useful in understanding of why some franchisors perform better than others. 1285

9 Therefore, the research propositions would be: Proposition1: plural form has a positive effect on organizational ambidexterity. Proposition 2: alliance portfolio management capability has a positive effect on organizational ambidexterity. Proposition 3: Growth orientation has a positive effect on organizational ambidexterity. Proposition 4: market diversity has a positive effect on organizational ambidexterity. Proposition 5: contract flexibility has a positive effect on organizational ambidexterity. As a whole, this article conceptualizes the organizational ambidexterity in franchisors context, and offers some new research directions for effective use of franchise business models, which could be seen specially in developing countries and better understanding of this issue is waiting for future researches and empirical testing of referred propositions. References Agrawal, M. (1995). Review of a 40-year debate in international advertising: Practitioner and academician perspectives to the standardization/adaptation issue. International Marketing Review, 12(1), Ahmadpour dariyani, M., Ahmadiyan rad, S., and Pourani, A. Studying effective factors of franchise intention. Business management, 1(2). Pp Bandariyan, R Simultaneous ambidexterity, the proper model of organizing exploration and utilization activities in research and technology organizations. Oil industry research center. Baucus, D. A., Baucus, M. S., & Human, S. E. (1996). Consensus in franchise organizations: A cooperative arrangement among entrepreneurs. Journal of Business Venturing, 11(5), Birkinshaw, J., & Gupta, K. (2013). Clarifying the distinctive contribution of ambidexterity to the field of organization studies. The Academy of Management Perspectives, 27(4), Boulay, J. (2010). The role of contract, information systems and norms in the governance of franchise systems. International Journal of Retail & Distribution Management, 38(9), Bradach, J. L. (1997). Using the plural form in the management of restaurant chains. Administrative Science Quarterly,

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