Description
This abstract tell entrepreneurial ventures and small business.
Entrepreneurial Ventures and
Small Business
An Assessment of the Entrepreneurial Roles of
the Franchisor and the Franchisee from an
Entrepreneurial School of Strategy Formation
Perspective
Entrepreneurial
Ventures
and
Small
Business
123 - 138
Sema Sakarya Tapan
Bo?aziçi University
?stanbul
Turkey
Abstract: Both small and large businesses are of critical importance to the performance of
the economy. It is useful however to draw a distinction between entrepreneurial ventures
and individual and corporate entrepreneurship since they serve different economic
functions and their potentials for innovation and growth are different. In this paper,
drawing upon entrepreneurial strategy formation perspective, entrepreneurial marketing,
and value innovation logic for high growth, a model of a transitional entrepreneurial mode
for the behaviour and the strategic approach of the entrepreneurial venture is introduced. It
is proposed that a shift into the entrepreneurial mode is instrumental in planning and
initiating new ventures, and, in achieving a forward leap in the growth trend at any point in
the life of ongoing ventures. The study of the franchised business, the business format
franchisor and their partnership as examples of individual, corporate and collective
entrepreneurship contributes to the domain of entrepreneurship research. The growing
appreciation of franchising as an entrepreneurial endeavour presents us with a multiple
disciplinary perspective is attracting the attention of marketing, management,
entrepreneurship and small business researchers. The roles of the franchisor and the
franchisee in business format franchising are discussed in order to demonstrate the
limitations of small business in adopting an entrepreneurial mode.
SMALL VERSUS LARGE BUSINESS AND THE
ENTREPRENEURIAL VENTURE
The literature on entrepreneurship cuts across disciplinary boundaries and
entails a complex set of contiguous and overlapping constructs such as the
management of change, innovation, technological and environment
turbulence, new product development, small business management,
individualism and industry evolution (Low and MacMillan, 1988).
Researchers in this area have pursued varied goals, adopted different units
of analysis and espoused diverse theoretical perspectives and
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methodologies. Streams of research have focused on individual
entrepreneurs, the formation of new firms and the functioning of existing
firms but without any definitional consensus on entrepreneurship. (Low and
MacMillan, 1988: Cunningham and Lisheron, 1991: MacMillan and Katz,
1992).
Observing the result of entrepreneurial behaviour and activity can be helpful
in understanding entrepreneurship. Ventures differ in their capacities to
achieve dramatic leaps in growth. The strategic approach and behaviour of
the entrepreneur or the intrapreneurial team in new venture planning and
initiation, as well as the behaviour of the ongoing ventures that can start a
new growth stage after business stabilization, have common aspects. It is
conceptualised in this paper that this common behaviour reflects a
transitional entrepreneurial mode and ventures in the entrepreneurial mode
are characterised as entrepreneurial ventures. Entrepreneurial ventures can
achieve radical growth in a short span of time relative to their existing
positions. It is proposed that this model of the strategic approach and the
behaviour of the entrepreneurial venture applies to individual, corporate and
collective entrepreneurship. The aim is to contribute to the understanding of
the constants of entrepreneurial activity given that small businesses and their
larger counterparts have different levels of capacity for transforming into
entrepreneurial ventures. A discussion of the entrepreneurial venture and
individual, corporate and collective entrepreneurship characteristics in this
section is followed by a discussion of the entrepreneurial mode in the next
section. The third section examines the roles of the franchisor and the
franchisee in business format franchising and explores their capacities for
adopting an entrepreneurial mode.
Organizations whether small or large perform both managerial and
entrepreneurial functions. They manage economic resources and allocate
them toward the achievement of output and profit whilst at the same time
they are engaged in the exploitation of opportunities. The more the bias
toward the managerial function of the firm, the more the firm moves away
from being an entrepreneurial venture and the more the business strategy is
directed to the allocation and the control of economic resources. In the
entrepreneurial venture, the focus of business strategy is on the
entrepreneurial function – pursuit of opportunities through innovation and
new value creation - and growth. The entrepreneurial function as a source
of sustainable competitive advantage, survival and growth is emphasized
beyond the management of economic resources and strategies directed at
operational effectiveness. Engagement in innovation and the discovery and
exploitation of new business opportunities that will be instrumental in
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achieving a quantum leap in growth relative to the existing position is the
priority. The entrepreneur planning a new venture or the management of the
ongoing venture exaggerates the entrepreneurial function and adopts an
entrepreneurial mode when is it necessary to make a forward leap in growth.
The entrepreneurial mode is observed at the planning and start up stages of
new ventures as well as in the behaviour of ongoing enterprises which attain
a forward leap in the growth trend, especially in the behaviour of those that
can start a new growth stage and prosper beyond the business stabilization
stage.
The venture characteristics, managerial skills and entrepreneurial needs
differ throughout the stages of the venture’s development. The stages are
important strategic points requiring different sets of strategies emphasizing
different functions of the organization. The new venture development stage
is characterised by a focus on bringing about change and making a
difference through an opportunity with the potential for creating new value.
The organization is shaped to fit the opportunity, the resources are attracted
and are focused into the opportunity and the resource-organization
configuration is accomplished to start up the venture. The entrepreneurial
function dominates throughout these stages. The growth stage presents
different problems and coping with this stage requires new managerial skills
along with the entrepreneurial perspective (Tepstra and Olson, 1993; Hood
and Young, 1993). The growth in income, expenditures, profits, market
presence, competitive advantages, organizational form, process, structure
and culture demand a balancing of the economic and the entrepreneurial
functions of the enterprise. The business stabilization stage requires a shift
in strategic direction. The venture will either innovate and start a new
growth stage or decline. The major challenge throughout the life of the
venture is to respond with the optimum focus mix of the entrepreneurial and
the economic functions to the requirements of different stages. Depending
on the stage, the transition in style of management must be accomplished
(Hofer and Charan, 1984), the entrepreneurial and the administrative focus
must be balanced (Miner, 1990), and the level of flexibility and
adaptiveness must be maintained (Stevenson and Jarillo-Mossi, 1986).
Some ventures are observed to pursue opportunities that create new value
based on a significant innovation and achieve a forward leap in growth
regardless of the level of effectiveness in the utilization of the tools and
strategies for managing the venture and the stage of development. It is
suggested in this paper that these ventures are different than others in their
ability to shift into an entrepreneurial mode and are classified as
entrepreneurial ventures. Entrepreneurial ventures in the entrepreneurial
mode are observed to offer new value based on a significant innovation in
achieving a forward leap in growth relative to existing position. They are
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managed by opportunity driven entrepreneurs or intrapreneurial teams with
clear and well-communicated vision and centralized power stressing
innovation beyond conventional levels and perspectives.
The size of the venture is a poor guide as to whether it can adopt an
entrepreneurial mode or not and both small businesses and their larger
counterparts can transform into entrepreneurial ventures. Innovative
activities in small firms are also common (Hoffman et al., 1997). Their
structures and characteristics however impose varying levels and types of
constraints in doing so. Strategic alliances between enterprises of all sizes
are examples of collective entrepreneurship. They are initiated by their
members for the joint exploitation of an opportunity and dissolve if they fail
to attain their objectives. These networks of organizations can be classified
as entrepreneurial ventures without well-defined boundaries. The following
discussion aims to demonstrate the characteristics of these distinct types of
business institutions that affect their varying potentials for transforming into
entrepreneurial ventures.
Small and large businesses are examples of individual and corporate
entrepreneurship representing pre/early industrial and industrial stages of
capitalism. In small business the individual owner-manager entrepreneur is
the heart of economic activity. He performs both managerial and
entrepreneurial functions and works together with the labour force. The
business is characterised by lack of boundaries separating the owner-
entrepreneur from the management and workers. The small business is
usually located in a small-scale industry consisting of small-scale
enterprises and has very little control and impact on its environment. It is
usually involved in delivering an established product or service to a locality
and sometimes may be delivering an innovation to a market that would not
otherwise have access to it. Daily involvement in the business offers the
owner the advantages of provision of technical and market information that
is instrumental in enhancing the capacity to discover and exploit new market
opportunities, and to deliver low cost high quality products to customers as
well as the capacity to effectively adjust products and inputs to changing
market conditions. The potential to create a sense of community and
common fate and to minimize bureaucracy is also high. Small size on the
other hand brings along technological and financial limitations. Even
though there is the possibility of lowering technological constraints through
tie-ins with large firms, small business still lacks market capabilities and
specialised managerial knowledge of professional management necessary
for developing strategies for expanding into larger markets and challenging
the global market. Size poses limitations on the ability of the enterprise to
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attain economies of scale and the associated cost advantages and to handle
uncertainty and assume the high risk associated with expansion. Lack of
capital is a strong constraint to growth.
Large business is characterised with impersonal/corporate capitalism. The
professional manager is at centre of economic activity that is owned by a
large number of shareholders who have delegated both the managerial and
the entrepreneurial functions to the management team. The internal
boundaries disconnect management from the large number of workers and
shareholders. It is usually located in a large-scale industry with relatively
small number of enterprises. Relative to the small business, large business
has higher control over and impact on its environment. Large size allows
the enterprise to attain scale economies and the capacity to expand
operations. Professional management allows the acquisition of skills and
technology, the shareholders allow the sizeable capital. Technology, capital
and managerial know-how provide a higher capacity for and the higher
probability of spreading risks, innovation and the development of products
that require large amounts of investment and intensive technology. On the
other hand, the internal boundaries that separate owners and the workers
from management may lead to a conflict of interest between the
stockholders and management, a deviation from an optimal size and
bureaucracy. This may diminish both managerial and entrepreneurial
functions and block the information flow between the top and bottom layers
of the organization. Defining characteristics of large firms support their
capacity to expand operations nationally and globally and allow a high
potential for growth.
The social environment of each stage of capitalism features distinct business
institutions. Collective entrepreneurship is an example of the distinct
institutions of the post-industrial/network capitalism stage. Network
capitalism is a hybrid of corporate and individual capitalism where groups
of networking enterprises without well-defined external boundaries form
alliances and act together towards mutual goals. Alliances of suppliers,
producers, distributors, and former competitors feature a new breed of
market institution that combines the flexibility of individual capitalism with
the economies of scale, professional management, and financial capabilities
of the institutions of corporate capitalism (Mourdoukoutas, 1999).
Collective entrepreneurship is practised by both large and small
corporations as members of the network and is a common response to global
competition. Collective entrepreneurship provides its members the
communication, the incentives and the relationships that allow them to share
the risks and the rewards of information sharing and information integration
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for the discovery of and exploitation of new market opportunities, especially
those related to complex products and new value that require extensive
information and/or competencies that exists beyond corporate boundaries.
Effective and efficient allocation of roles is the sufficient condition for
successful business strategy in entrepreneurial networking. Initiated by the
pursuit of creating new value, market expansion and commonly for market
domination, the network’s potential for innovation and growth is high.
THE ENTREPRENEURIAL MODE
Entrepreneurial ventures are characterised by emphasizing the
entrepreneurial function of the organization which allows them a high
potential for significant innovation change, and growth. Ventures
emphasizing the entrepreneurial function through the adoption of an
opportunity driven entrepreneurial strategy formulation approach supported
by the value innovation logic for high growth are characterised as being in a
state of entrepreneurial mode.
Economists and business strategists have developed theories and business
strategies such as division of labour, scientific management, TQC, TQM,
reengineering and strategic management reflected in different schools of
strategy formulation for the management of enterprises. These tools
directed to operational effectiveness as well as strategy formulation guide
management on how strategies should be formulated – the content, the
process to be used, the systematic process of planning – and describe the
nature of ideal strategic behaviour that contributes to the competitiveness
and success of the enterprise. Whether individual entrepreneurs or
professional managers, the managements of enterprises benefit from these
tools at varying degrees given the constraints imposed by the nature of the
enterprise regarding the feasibility of utilizing them. Regardless of the
nature of the organization and its level of sophistication for the utilization of
these tools, all organizations reach a state where a change in strategic
direction in needed.
The rate of change in the environment reflected in the speed of maturation
of businesses and saturation of industries determine the frequency of the
need for changing strategic direction. Adoption of tools and strategies that
will enable organizations to realise a sufficient leap in growth and thus
secure a safe position and/or help them to excel is necessary for changing
direction. The entrepreneurial strategy for a situation that is certain to
change must avoid visualizing the problem as being limited to one of how to
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deal with existing structures, and must focus on creating and destroying
structures (Schumpeter, 1950). Organisations must abandon the competitive
strategies that will take them one step ahead and adopt a “sensational
strategy” (Ridderstrale and Nordström, 2000) for playing a different game.
They must transform into entrepreneurial ventures by adapting the
entrepreneurial mode. Innovation must be the specific function of the
enterprise (Drucker, 1985). The focus must be on creating an organizational
culture and external linkages and processes that will ensure pursuit of
opportunities through innovation that will result in new value and growth.
Corporate venturing (Burgelman, 1984: Kanter, 1985; Block and
MacMillan, 1993), linking innovative strategy to corporate strategy (Porter,
1980), change focused, opportunistic, innovative entrepreneurial marketing
(Carson et al.,1995), concern with ethics, a focus on aesthetics, emotional
competitiveness, corporate imagination (Ridderstrale and Nordström, 2000)
or any other possible approach or a blend of approaches can contribute to
the execution of the entrepreneurial mode and changing direction.
The entrepreneurial mode implies a sensational strategy and is instrumental
in bringing new value to the market which ensures growth and success. The
mode is observed in the strategic behaviour for the initiation of new
ventures, and also mature ventures that have been able to start a second
growth stage beyond the business stabilization stage. The term was used by
Mintzberg (1973) in his discussion of strategy making in three modes. The
proposed model of the entrepreneurial mode in this paper draws upon the
entrepreneurial strategy formation school of thought (Mintzberg, 1973;
Mintzberg et al., 1998), the value innovation and the strategic logic for high
growth (Kim and Mauborgne, 1997), the literature of marketing
/entrepreneurship interface (Murray, 1981; Hills, 1987; 1993; Omura et al.,
1993; Carson and Cromie, 1989) and perspectives on opportunity driven
business development (Skat-Rordam and Muzyka, 1999). The observed
result of the entrepreneurial mode is a significant innovation and high
growth relative to the existing position. The objective of new value creation
through challenging convention and the adoption of an opportunity driven
strategy in combination characterise the behaviour of the venture. Visionary
leadership is instrumental in commitment to these aspirations (Bennis and
Namus, 1985). The control and stimulation of the ongoing venture and the
pursuit of innovation and new value creation through new opportunities are
simultaneously carried out for business development and growth and the
destruction of existing ways of doing business may be necessary.
Mintzberg (1973) clarifies the chief characteristics of strategy making of the
entrepreneurial approach. In the entrepreneurial organization and the
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entrepreneurial mode strategy making is dominated by the active search for
opportunities that result in dramatic leaps forward in the face of uncertainty.
The power is centralized in the hands of the chief executive and growth is
the dominant goal of the organization. The entrepreneurial organization
focuses on opportunities and the problems are secondary, visionary
leadership prevails, bold strokes reflected in large decisions under
uncertainty are common, achievement is manifested in tangible growth
targets. In the discussion of the entrepreneurial school of strategy formation
Mintzberg et al. (1998) assume a simple and small organization and a
simple situation regarding the content, process and contextual dimensions of
the school. Start-ups, organizations in trouble that need dramatic changes
through turnaround, and local small organizations are stated to be the
appropriate context for the entrepreneurial mode. The constructs of the
entrepreneurial mode and the entrepreneurial venture as conceptualised in
this work however deviate from these simplicity assumptions and from
limitations on context, and apply to organizations of all sizes who are
exposed to all situations of varying levels of complexity. A second
deviation is related to the personalized leadership. The entrepreneurial
mode can be initiated and carried out by an individual as well as by a team
consisting of several members who may be entrepreneurs or intrapreneurs,
professional managers, experts and scientists working together and who may
be employing a blend of the tools of prescriptive and descriptive schools of
strategy formation in executing the mode.
Based on a study of thirty companies around the world, Kim and
Mauborgne (1997) state that high growth companies follow a logic of value
innovation that makes their competitors irrelevant. Their assumptions about
and the way they approach strategy is different. Strategic thinking is
dominated by value innovation rather than staying ahead of competition.
Adopting the value innovation logic implies that the firm rather than taking
industry conditions as given, assumes that they can be changed. Strategic
focus is thus about dominating the market by pursuing a quantum leap in
value, rather than by benchmarking competition and seeking key
commonalities in what drives customer value. The enterprise does not view
business opportunities through the lens of existing assets and capabilities but
assumes starting anew. The objective in value innovation is offering total
solutions to what the customers seek and reaching beyond the established
boundaries posed by traditionally offered solutions by the industry is
common. Value innovation logic aims at offering unprecedented value and
not technology or competencies. The important question guiding the logic
is “what if we start anew?”.
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The strategic logic of value innovation has similarities with and
complements the entrepreneurial school of strategy formation in explaining
the entrepreneurial mode. The focus is on change, innovation and growth in
both approaches, the latter providing more insight into the execution of the
mode. Another similar approach, opportunity drive business development,
is proposed by Skat-Rordam (1999). His work on changing strategic
direction derives from his consulting experience at Ernst and Young
Management Consulting and his studies as an executive in residence at
INSEAD. Given his observations related both to the inability of firms to
capitalize on business opportunities generated by radically changing markets
and the limitations of the strategy consulting tools in providing guidelines
for a change in strategic direction, he offers a straightforward perspective on
the behavioural dimension of the opportunity driven business. It is the
pursuit of opportunities rather than strategic planning that will result in
changes in strategic direction and that vision, curiosity and a nose for
business rather than goal setting, motivates the opportunity drive. These
points overlap with the strategic behaviour of the entrepreneurial venture
proposed and are valuable in demonstrating the importance of
entrepreneurial thinking behind fundamental corporate decisions for
changing strategic direction rapidly.
Whether examples of individual, corporate or collective entrepreneurship,
every business initiates with an entrepreneurial mode in strategy formation.
The survival and the capacity to transform into higher levels of
entrepreneurship depends on the ability to adopt an entrepreneurial mode for
achieving a leap in growth and changing direction. Small business can grow
and turn into a large business, the large businesses can grow and prosper and
form alliances by utilizing the entrepreneurial mode. Alliances as examples
of collective entrepreneurship are exceptions as their life spans are limited
with the duration of the employment of the entrepreneurial mode. The
capacities of small and large businesses differ in their potential for adopting
the entrepreneurial mode. Small businesses usually operate within a defined
market and an established industry and lack high growth potential as they
are not based on doing something significantly new. They are involved in
delivering an established product or service new to a locality. Small firms
face the difficulty of maintaining the entrepreneurial mode as executed in
the development stage of the venture’s life. Their focus is on how to deal
with existing structures. Small firms can introduce fundamentally new
products but it is very rate that they do this. Their capacity to innovate is
usually limited to incremental rather than radical innovations as defined by
Bellon and Whittington (1996). Few small firms were found to introduce
fundamentally new products (Stores and Sykes, 1996). Innovation of small
firm is more likely to consist of incremental adjustments to existing
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products and services as well as to make their offerings differ from those
generally available in the market in some minor but observable aspect
(Henry and Walker, 1991). The products developed by the majority of
small and medium sized enterprises are marginally differentiated from
others and from a natural progression from their existing business activities
(Carson, 1999). The majority of small firms survive and grow at a slow rate
by introducing small but regular improvements in their business activities
(Stokes, 1999). Their growth potentials are thus limited given that their
offerings are rarely based on a significant innovation.
FRANCHISING AS AN ENTREPRENEURIAL ENDEAVOUR
Franchising is the entrepreneurial partnership of the franchisor and the
franchisee both with entrepreneurial roles representing individual and
corporate entrepreneurship respectively. The network of the parties in
business format franchising form an example of collective entrepreneurship
where entrepreneurial skills and capital are jointly supplied.
Internationalisation of franchising is instrumental in the participation of
small and medium sized enterprises in world trade. Franchising is a hybrid
organizational form (Brickley and Dark, 1987) and a hybrid capital
instrument (Jensen, 1989). The demand for the system’s output at the retail
level is affected by the service level provided by the franchisee and the
brand name investments undertaken by the franchisor where both factors
relate to the royalty rate (Lal, 1990).
The franchisor in business format franchising is the creator and guardian of
a unique business format that relate to an innovation and to doing something
better and bears the responsibility of the efficient management of a complex
system of small businesses. The business format franchisor develops new
concepts either in the form of a product or a service or a unique and efficient
operating system. In the pursuit of the national and/or international growth
of the enterprise, collaboration with the franchisees are sought to overcome
resource constraints (Oxenfeldt and Kelly; 1969; Oxenfeldt and Thompson,
1969; Hunt, 1973; Dant, 1995), to solve the agency problem (Rubin, 1978;
Klein et al., 1978; Mathewson and Winter, 1985; Brickley et al., 1991) and
to overcome information constraints and to save on search costs (Martin,
1988; Minkler, 1992). The major resources risked in the relationship with
the franchisees are the ones devoted to the development of the brand.
The franchisee is the founder and manager of a small business activity
distinguished by its conspicuously close relationship with another larger
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enterprise. The individual entrepreneur’s expectations of higher utility from
franchising as compared to independent business ownership as well as his
entrepreneurial skills, his attitude toward risk and his financial capital are
effective in his decision to franchise (Williams, 1999). The business
delivers an innovation to a locality that would not otherwise have access to
it, usually with a lower cost or higher level of service. The business features
the corporate strategy of the larger enterprise, the franchisor, who supplies
the franchisee with managerial input. The franchisee risks resources by
devoting them to the development of untried markets for the franchisor’s
brand.
The network formed by the parties is reinforced through the franchise
agreement. Through a contract, the franchisee purchases the rights to the
profits from a unit by paying an upfront fee and an ongoing sales royalty to
the franchisor. The uniqueness of the franchise contract creates an inter-
organisational business relationship that is different from other channel
relationships (Swenson et al., 1990). Anticipation of an ongoing
relationship, continuous exhange, operating standards and a unique business
concept are distinguishing characteristics of the contract (Sibley and Michie,
1982). The bias of the contract is towards the franchisor influencing the
location of power in the partnership (El-Ansary and Stern, 1972; Lusch,
1976; Forward and Fullop, 1993). Franchise contracts are typically standard
across franchisees with little room for negotiation (Lafontaine and
Kaufmann, 1994). They are used by the franchisor as a tool for effectively
managing the system.
The nature of the franchise contract is instrumental in demonstrating the
relative potentials of individual and corporate entrepreneurship for shifting
into an entrepreneurial mode. Franchise contracts define the territory to be
served by the franchisee; require the franchisee to purchase certain supplies
from the franchisor; require them to abide quality standards relating to the
product offered; define the product mix; and provide for the date and
conditions of termination of the franchise agreement. The contract imposes
limitations on the innovativeness and the growth potential of the franchised
business through defining the format, the operational procedures and the
boundaries of the market. The franchisee’s potential for exploiting its value
chain and creating technological innovation, new products, new ways of
production, marketing and distribution as well as new ways of structuring
and managing the organization is limited. The contract can be used as a tool
for coercive power by the franchisor (Sibley and Michie, 1982) and the
relationship may be terminated if the franchisee fails to comply with the
terms of agreement. The nature of the contract limits the strategic
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objectives and the growth of the franchisee and thus their potential to adopt
an entrepreneurial mode. Business format franchisors are observed to
achieve high growth in short spans of time regardless of the variation of the
emphasis on the growth objective over efficiency considerations among
franchisors (Carney and Gedajlovic, 1991). The business format franchisor
can be classified as an innovative entrepreneurial venture with high potential
for growth and innovation. In the franchise relationship, the franchisor has a
higher potential for shifting into an entrepreneurial mode.
CONCLUSION AND RESEARCH IMPLICATIONS
This article aimed to present a model of the strategic approach and the
entrepreneurial behaviour and activity in individual / corporate
entrepreneurship that leads to a positive leap forward relative to present
position. Planning and initiation of a new venture from a position of non-
existence to start-up and achieving a dramatic leap in growth beyond the
normal growth trend - like initiating a new growth stage at business
stabilization – are conceptualised as positive leaps forward relative to
present position. It is proposed that entrepreneurial / intrapreneurial teams
planning and initiating new ventures or achieving a dramatic leap in the
growth in ongoing ventures adopt a common and transitional strategic
approach and behaviour called the entrepreneurial mode. The inputs into
the model are innovation and opportunity driven visionary leadership with
central authority, dominant growth objective and tangible growth targets
that can surpass conventional logic, leveraging existing assets and
capabilities, traditional boundaries and concerns for survival that relate to a
projection of present. The process is strategic thinking dominated by a logic
of value innovation for offering unprecedented value rather than staying
ahead of competition. The strategic focus is on challenging industry
conditions, on dominating the market by innovation and pursuing a quantum
leap in value and on starting anew. The output of the model is a dramatic
leap in growth relative to present position. Opportunity driven enterprises
that can achieve a dramatic leap in growth in the face of uncertainty through
the utilization of the entrepreneurial mode are conceptualised as
entrepreneurial ventures.
The model of the transitional entrepreneurial mode is conceptualised to
apply to small businesses, their larger counterparts and network
organizations. It is proposed however that the characteristics of the business
institutions of individual, corporate and collective entrepreneurship imply
varying levels of capacity for adopting an entrepreneurial mode and for
transforming into an entrepreneurial venture. The business institutions in
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individual, corporate and collective entrepreneurship and the franchisor and
the franchisee and their network in business format franchising as examples
of these institutions are discussed for assessing their varying potentials for
shifting into an entrepreneurial mode. The analysis of the roles and the
relationship of parties in business format franchising leads to the conclusion
that relative to the business format franchisor, the capacity of the small
franchised business to shift into an entrepreneurial mode and to transform
into an entrepreneurial venture is limited, and that the franchisor can be
classified as an innovative entrepreneurial venture with clear strategic
objectives and high potential for growth.
The proposed model introduces a new perspective which seeks to integrate
economic and strategic approaches to entrepreneurship and to serve as a
frame of reference for developing a common understanding of individual,
corporate and collective entrepreneurship. The discussion of the model was
limited to a commercial context. It is assumed however that the model also
applies to the entrepreneurial behaviour in non-commercial contexts. Some
of the propositions made are supported by reasonably adequate evidence
while others are speculative and require additional research. The basic
premise of the model is that entrepreneurship is a complex and multivariate
phenomenon and that integrating the findings of theoretical and empirical
research results from related disciplines can contribute to the understanding
of entrepreneurship, and to the determination of the underlying variables of
entrepreneurial behaviour. The model can be used for developing measures
and operationalizing relevant constructs. The entrepreneurial partnership in
business format franchising and the behavioural tension stemming from
autonomy/dependence perceptions and the needs of the partners is a fruitful
area for research.
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doc_358865637.pdf
This abstract tell entrepreneurial ventures and small business.
Entrepreneurial Ventures and
Small Business
An Assessment of the Entrepreneurial Roles of
the Franchisor and the Franchisee from an
Entrepreneurial School of Strategy Formation
Perspective
Entrepreneurial
Ventures
and
Small
Business
123 - 138
Sema Sakarya Tapan
Bo?aziçi University
?stanbul
Turkey
Abstract: Both small and large businesses are of critical importance to the performance of
the economy. It is useful however to draw a distinction between entrepreneurial ventures
and individual and corporate entrepreneurship since they serve different economic
functions and their potentials for innovation and growth are different. In this paper,
drawing upon entrepreneurial strategy formation perspective, entrepreneurial marketing,
and value innovation logic for high growth, a model of a transitional entrepreneurial mode
for the behaviour and the strategic approach of the entrepreneurial venture is introduced. It
is proposed that a shift into the entrepreneurial mode is instrumental in planning and
initiating new ventures, and, in achieving a forward leap in the growth trend at any point in
the life of ongoing ventures. The study of the franchised business, the business format
franchisor and their partnership as examples of individual, corporate and collective
entrepreneurship contributes to the domain of entrepreneurship research. The growing
appreciation of franchising as an entrepreneurial endeavour presents us with a multiple
disciplinary perspective is attracting the attention of marketing, management,
entrepreneurship and small business researchers. The roles of the franchisor and the
franchisee in business format franchising are discussed in order to demonstrate the
limitations of small business in adopting an entrepreneurial mode.
SMALL VERSUS LARGE BUSINESS AND THE
ENTREPRENEURIAL VENTURE
The literature on entrepreneurship cuts across disciplinary boundaries and
entails a complex set of contiguous and overlapping constructs such as the
management of change, innovation, technological and environment
turbulence, new product development, small business management,
individualism and industry evolution (Low and MacMillan, 1988).
Researchers in this area have pursued varied goals, adopted different units
of analysis and espoused diverse theoretical perspectives and
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methodologies. Streams of research have focused on individual
entrepreneurs, the formation of new firms and the functioning of existing
firms but without any definitional consensus on entrepreneurship. (Low and
MacMillan, 1988: Cunningham and Lisheron, 1991: MacMillan and Katz,
1992).
Observing the result of entrepreneurial behaviour and activity can be helpful
in understanding entrepreneurship. Ventures differ in their capacities to
achieve dramatic leaps in growth. The strategic approach and behaviour of
the entrepreneur or the intrapreneurial team in new venture planning and
initiation, as well as the behaviour of the ongoing ventures that can start a
new growth stage after business stabilization, have common aspects. It is
conceptualised in this paper that this common behaviour reflects a
transitional entrepreneurial mode and ventures in the entrepreneurial mode
are characterised as entrepreneurial ventures. Entrepreneurial ventures can
achieve radical growth in a short span of time relative to their existing
positions. It is proposed that this model of the strategic approach and the
behaviour of the entrepreneurial venture applies to individual, corporate and
collective entrepreneurship. The aim is to contribute to the understanding of
the constants of entrepreneurial activity given that small businesses and their
larger counterparts have different levels of capacity for transforming into
entrepreneurial ventures. A discussion of the entrepreneurial venture and
individual, corporate and collective entrepreneurship characteristics in this
section is followed by a discussion of the entrepreneurial mode in the next
section. The third section examines the roles of the franchisor and the
franchisee in business format franchising and explores their capacities for
adopting an entrepreneurial mode.
Organizations whether small or large perform both managerial and
entrepreneurial functions. They manage economic resources and allocate
them toward the achievement of output and profit whilst at the same time
they are engaged in the exploitation of opportunities. The more the bias
toward the managerial function of the firm, the more the firm moves away
from being an entrepreneurial venture and the more the business strategy is
directed to the allocation and the control of economic resources. In the
entrepreneurial venture, the focus of business strategy is on the
entrepreneurial function – pursuit of opportunities through innovation and
new value creation - and growth. The entrepreneurial function as a source
of sustainable competitive advantage, survival and growth is emphasized
beyond the management of economic resources and strategies directed at
operational effectiveness. Engagement in innovation and the discovery and
exploitation of new business opportunities that will be instrumental in
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achieving a quantum leap in growth relative to the existing position is the
priority. The entrepreneur planning a new venture or the management of the
ongoing venture exaggerates the entrepreneurial function and adopts an
entrepreneurial mode when is it necessary to make a forward leap in growth.
The entrepreneurial mode is observed at the planning and start up stages of
new ventures as well as in the behaviour of ongoing enterprises which attain
a forward leap in the growth trend, especially in the behaviour of those that
can start a new growth stage and prosper beyond the business stabilization
stage.
The venture characteristics, managerial skills and entrepreneurial needs
differ throughout the stages of the venture’s development. The stages are
important strategic points requiring different sets of strategies emphasizing
different functions of the organization. The new venture development stage
is characterised by a focus on bringing about change and making a
difference through an opportunity with the potential for creating new value.
The organization is shaped to fit the opportunity, the resources are attracted
and are focused into the opportunity and the resource-organization
configuration is accomplished to start up the venture. The entrepreneurial
function dominates throughout these stages. The growth stage presents
different problems and coping with this stage requires new managerial skills
along with the entrepreneurial perspective (Tepstra and Olson, 1993; Hood
and Young, 1993). The growth in income, expenditures, profits, market
presence, competitive advantages, organizational form, process, structure
and culture demand a balancing of the economic and the entrepreneurial
functions of the enterprise. The business stabilization stage requires a shift
in strategic direction. The venture will either innovate and start a new
growth stage or decline. The major challenge throughout the life of the
venture is to respond with the optimum focus mix of the entrepreneurial and
the economic functions to the requirements of different stages. Depending
on the stage, the transition in style of management must be accomplished
(Hofer and Charan, 1984), the entrepreneurial and the administrative focus
must be balanced (Miner, 1990), and the level of flexibility and
adaptiveness must be maintained (Stevenson and Jarillo-Mossi, 1986).
Some ventures are observed to pursue opportunities that create new value
based on a significant innovation and achieve a forward leap in growth
regardless of the level of effectiveness in the utilization of the tools and
strategies for managing the venture and the stage of development. It is
suggested in this paper that these ventures are different than others in their
ability to shift into an entrepreneurial mode and are classified as
entrepreneurial ventures. Entrepreneurial ventures in the entrepreneurial
mode are observed to offer new value based on a significant innovation in
achieving a forward leap in growth relative to existing position. They are
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managed by opportunity driven entrepreneurs or intrapreneurial teams with
clear and well-communicated vision and centralized power stressing
innovation beyond conventional levels and perspectives.
The size of the venture is a poor guide as to whether it can adopt an
entrepreneurial mode or not and both small businesses and their larger
counterparts can transform into entrepreneurial ventures. Innovative
activities in small firms are also common (Hoffman et al., 1997). Their
structures and characteristics however impose varying levels and types of
constraints in doing so. Strategic alliances between enterprises of all sizes
are examples of collective entrepreneurship. They are initiated by their
members for the joint exploitation of an opportunity and dissolve if they fail
to attain their objectives. These networks of organizations can be classified
as entrepreneurial ventures without well-defined boundaries. The following
discussion aims to demonstrate the characteristics of these distinct types of
business institutions that affect their varying potentials for transforming into
entrepreneurial ventures.
Small and large businesses are examples of individual and corporate
entrepreneurship representing pre/early industrial and industrial stages of
capitalism. In small business the individual owner-manager entrepreneur is
the heart of economic activity. He performs both managerial and
entrepreneurial functions and works together with the labour force. The
business is characterised by lack of boundaries separating the owner-
entrepreneur from the management and workers. The small business is
usually located in a small-scale industry consisting of small-scale
enterprises and has very little control and impact on its environment. It is
usually involved in delivering an established product or service to a locality
and sometimes may be delivering an innovation to a market that would not
otherwise have access to it. Daily involvement in the business offers the
owner the advantages of provision of technical and market information that
is instrumental in enhancing the capacity to discover and exploit new market
opportunities, and to deliver low cost high quality products to customers as
well as the capacity to effectively adjust products and inputs to changing
market conditions. The potential to create a sense of community and
common fate and to minimize bureaucracy is also high. Small size on the
other hand brings along technological and financial limitations. Even
though there is the possibility of lowering technological constraints through
tie-ins with large firms, small business still lacks market capabilities and
specialised managerial knowledge of professional management necessary
for developing strategies for expanding into larger markets and challenging
the global market. Size poses limitations on the ability of the enterprise to
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attain economies of scale and the associated cost advantages and to handle
uncertainty and assume the high risk associated with expansion. Lack of
capital is a strong constraint to growth.
Large business is characterised with impersonal/corporate capitalism. The
professional manager is at centre of economic activity that is owned by a
large number of shareholders who have delegated both the managerial and
the entrepreneurial functions to the management team. The internal
boundaries disconnect management from the large number of workers and
shareholders. It is usually located in a large-scale industry with relatively
small number of enterprises. Relative to the small business, large business
has higher control over and impact on its environment. Large size allows
the enterprise to attain scale economies and the capacity to expand
operations. Professional management allows the acquisition of skills and
technology, the shareholders allow the sizeable capital. Technology, capital
and managerial know-how provide a higher capacity for and the higher
probability of spreading risks, innovation and the development of products
that require large amounts of investment and intensive technology. On the
other hand, the internal boundaries that separate owners and the workers
from management may lead to a conflict of interest between the
stockholders and management, a deviation from an optimal size and
bureaucracy. This may diminish both managerial and entrepreneurial
functions and block the information flow between the top and bottom layers
of the organization. Defining characteristics of large firms support their
capacity to expand operations nationally and globally and allow a high
potential for growth.
The social environment of each stage of capitalism features distinct business
institutions. Collective entrepreneurship is an example of the distinct
institutions of the post-industrial/network capitalism stage. Network
capitalism is a hybrid of corporate and individual capitalism where groups
of networking enterprises without well-defined external boundaries form
alliances and act together towards mutual goals. Alliances of suppliers,
producers, distributors, and former competitors feature a new breed of
market institution that combines the flexibility of individual capitalism with
the economies of scale, professional management, and financial capabilities
of the institutions of corporate capitalism (Mourdoukoutas, 1999).
Collective entrepreneurship is practised by both large and small
corporations as members of the network and is a common response to global
competition. Collective entrepreneurship provides its members the
communication, the incentives and the relationships that allow them to share
the risks and the rewards of information sharing and information integration
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for the discovery of and exploitation of new market opportunities, especially
those related to complex products and new value that require extensive
information and/or competencies that exists beyond corporate boundaries.
Effective and efficient allocation of roles is the sufficient condition for
successful business strategy in entrepreneurial networking. Initiated by the
pursuit of creating new value, market expansion and commonly for market
domination, the network’s potential for innovation and growth is high.
THE ENTREPRENEURIAL MODE
Entrepreneurial ventures are characterised by emphasizing the
entrepreneurial function of the organization which allows them a high
potential for significant innovation change, and growth. Ventures
emphasizing the entrepreneurial function through the adoption of an
opportunity driven entrepreneurial strategy formulation approach supported
by the value innovation logic for high growth are characterised as being in a
state of entrepreneurial mode.
Economists and business strategists have developed theories and business
strategies such as division of labour, scientific management, TQC, TQM,
reengineering and strategic management reflected in different schools of
strategy formulation for the management of enterprises. These tools
directed to operational effectiveness as well as strategy formulation guide
management on how strategies should be formulated – the content, the
process to be used, the systematic process of planning – and describe the
nature of ideal strategic behaviour that contributes to the competitiveness
and success of the enterprise. Whether individual entrepreneurs or
professional managers, the managements of enterprises benefit from these
tools at varying degrees given the constraints imposed by the nature of the
enterprise regarding the feasibility of utilizing them. Regardless of the
nature of the organization and its level of sophistication for the utilization of
these tools, all organizations reach a state where a change in strategic
direction in needed.
The rate of change in the environment reflected in the speed of maturation
of businesses and saturation of industries determine the frequency of the
need for changing strategic direction. Adoption of tools and strategies that
will enable organizations to realise a sufficient leap in growth and thus
secure a safe position and/or help them to excel is necessary for changing
direction. The entrepreneurial strategy for a situation that is certain to
change must avoid visualizing the problem as being limited to one of how to
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deal with existing structures, and must focus on creating and destroying
structures (Schumpeter, 1950). Organisations must abandon the competitive
strategies that will take them one step ahead and adopt a “sensational
strategy” (Ridderstrale and Nordström, 2000) for playing a different game.
They must transform into entrepreneurial ventures by adapting the
entrepreneurial mode. Innovation must be the specific function of the
enterprise (Drucker, 1985). The focus must be on creating an organizational
culture and external linkages and processes that will ensure pursuit of
opportunities through innovation that will result in new value and growth.
Corporate venturing (Burgelman, 1984: Kanter, 1985; Block and
MacMillan, 1993), linking innovative strategy to corporate strategy (Porter,
1980), change focused, opportunistic, innovative entrepreneurial marketing
(Carson et al.,1995), concern with ethics, a focus on aesthetics, emotional
competitiveness, corporate imagination (Ridderstrale and Nordström, 2000)
or any other possible approach or a blend of approaches can contribute to
the execution of the entrepreneurial mode and changing direction.
The entrepreneurial mode implies a sensational strategy and is instrumental
in bringing new value to the market which ensures growth and success. The
mode is observed in the strategic behaviour for the initiation of new
ventures, and also mature ventures that have been able to start a second
growth stage beyond the business stabilization stage. The term was used by
Mintzberg (1973) in his discussion of strategy making in three modes. The
proposed model of the entrepreneurial mode in this paper draws upon the
entrepreneurial strategy formation school of thought (Mintzberg, 1973;
Mintzberg et al., 1998), the value innovation and the strategic logic for high
growth (Kim and Mauborgne, 1997), the literature of marketing
/entrepreneurship interface (Murray, 1981; Hills, 1987; 1993; Omura et al.,
1993; Carson and Cromie, 1989) and perspectives on opportunity driven
business development (Skat-Rordam and Muzyka, 1999). The observed
result of the entrepreneurial mode is a significant innovation and high
growth relative to the existing position. The objective of new value creation
through challenging convention and the adoption of an opportunity driven
strategy in combination characterise the behaviour of the venture. Visionary
leadership is instrumental in commitment to these aspirations (Bennis and
Namus, 1985). The control and stimulation of the ongoing venture and the
pursuit of innovation and new value creation through new opportunities are
simultaneously carried out for business development and growth and the
destruction of existing ways of doing business may be necessary.
Mintzberg (1973) clarifies the chief characteristics of strategy making of the
entrepreneurial approach. In the entrepreneurial organization and the
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entrepreneurial mode strategy making is dominated by the active search for
opportunities that result in dramatic leaps forward in the face of uncertainty.
The power is centralized in the hands of the chief executive and growth is
the dominant goal of the organization. The entrepreneurial organization
focuses on opportunities and the problems are secondary, visionary
leadership prevails, bold strokes reflected in large decisions under
uncertainty are common, achievement is manifested in tangible growth
targets. In the discussion of the entrepreneurial school of strategy formation
Mintzberg et al. (1998) assume a simple and small organization and a
simple situation regarding the content, process and contextual dimensions of
the school. Start-ups, organizations in trouble that need dramatic changes
through turnaround, and local small organizations are stated to be the
appropriate context for the entrepreneurial mode. The constructs of the
entrepreneurial mode and the entrepreneurial venture as conceptualised in
this work however deviate from these simplicity assumptions and from
limitations on context, and apply to organizations of all sizes who are
exposed to all situations of varying levels of complexity. A second
deviation is related to the personalized leadership. The entrepreneurial
mode can be initiated and carried out by an individual as well as by a team
consisting of several members who may be entrepreneurs or intrapreneurs,
professional managers, experts and scientists working together and who may
be employing a blend of the tools of prescriptive and descriptive schools of
strategy formation in executing the mode.
Based on a study of thirty companies around the world, Kim and
Mauborgne (1997) state that high growth companies follow a logic of value
innovation that makes their competitors irrelevant. Their assumptions about
and the way they approach strategy is different. Strategic thinking is
dominated by value innovation rather than staying ahead of competition.
Adopting the value innovation logic implies that the firm rather than taking
industry conditions as given, assumes that they can be changed. Strategic
focus is thus about dominating the market by pursuing a quantum leap in
value, rather than by benchmarking competition and seeking key
commonalities in what drives customer value. The enterprise does not view
business opportunities through the lens of existing assets and capabilities but
assumes starting anew. The objective in value innovation is offering total
solutions to what the customers seek and reaching beyond the established
boundaries posed by traditionally offered solutions by the industry is
common. Value innovation logic aims at offering unprecedented value and
not technology or competencies. The important question guiding the logic
is “what if we start anew?”.
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The strategic logic of value innovation has similarities with and
complements the entrepreneurial school of strategy formation in explaining
the entrepreneurial mode. The focus is on change, innovation and growth in
both approaches, the latter providing more insight into the execution of the
mode. Another similar approach, opportunity drive business development,
is proposed by Skat-Rordam (1999). His work on changing strategic
direction derives from his consulting experience at Ernst and Young
Management Consulting and his studies as an executive in residence at
INSEAD. Given his observations related both to the inability of firms to
capitalize on business opportunities generated by radically changing markets
and the limitations of the strategy consulting tools in providing guidelines
for a change in strategic direction, he offers a straightforward perspective on
the behavioural dimension of the opportunity driven business. It is the
pursuit of opportunities rather than strategic planning that will result in
changes in strategic direction and that vision, curiosity and a nose for
business rather than goal setting, motivates the opportunity drive. These
points overlap with the strategic behaviour of the entrepreneurial venture
proposed and are valuable in demonstrating the importance of
entrepreneurial thinking behind fundamental corporate decisions for
changing strategic direction rapidly.
Whether examples of individual, corporate or collective entrepreneurship,
every business initiates with an entrepreneurial mode in strategy formation.
The survival and the capacity to transform into higher levels of
entrepreneurship depends on the ability to adopt an entrepreneurial mode for
achieving a leap in growth and changing direction. Small business can grow
and turn into a large business, the large businesses can grow and prosper and
form alliances by utilizing the entrepreneurial mode. Alliances as examples
of collective entrepreneurship are exceptions as their life spans are limited
with the duration of the employment of the entrepreneurial mode. The
capacities of small and large businesses differ in their potential for adopting
the entrepreneurial mode. Small businesses usually operate within a defined
market and an established industry and lack high growth potential as they
are not based on doing something significantly new. They are involved in
delivering an established product or service new to a locality. Small firms
face the difficulty of maintaining the entrepreneurial mode as executed in
the development stage of the venture’s life. Their focus is on how to deal
with existing structures. Small firms can introduce fundamentally new
products but it is very rate that they do this. Their capacity to innovate is
usually limited to incremental rather than radical innovations as defined by
Bellon and Whittington (1996). Few small firms were found to introduce
fundamentally new products (Stores and Sykes, 1996). Innovation of small
firm is more likely to consist of incremental adjustments to existing
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products and services as well as to make their offerings differ from those
generally available in the market in some minor but observable aspect
(Henry and Walker, 1991). The products developed by the majority of
small and medium sized enterprises are marginally differentiated from
others and from a natural progression from their existing business activities
(Carson, 1999). The majority of small firms survive and grow at a slow rate
by introducing small but regular improvements in their business activities
(Stokes, 1999). Their growth potentials are thus limited given that their
offerings are rarely based on a significant innovation.
FRANCHISING AS AN ENTREPRENEURIAL ENDEAVOUR
Franchising is the entrepreneurial partnership of the franchisor and the
franchisee both with entrepreneurial roles representing individual and
corporate entrepreneurship respectively. The network of the parties in
business format franchising form an example of collective entrepreneurship
where entrepreneurial skills and capital are jointly supplied.
Internationalisation of franchising is instrumental in the participation of
small and medium sized enterprises in world trade. Franchising is a hybrid
organizational form (Brickley and Dark, 1987) and a hybrid capital
instrument (Jensen, 1989). The demand for the system’s output at the retail
level is affected by the service level provided by the franchisee and the
brand name investments undertaken by the franchisor where both factors
relate to the royalty rate (Lal, 1990).
The franchisor in business format franchising is the creator and guardian of
a unique business format that relate to an innovation and to doing something
better and bears the responsibility of the efficient management of a complex
system of small businesses. The business format franchisor develops new
concepts either in the form of a product or a service or a unique and efficient
operating system. In the pursuit of the national and/or international growth
of the enterprise, collaboration with the franchisees are sought to overcome
resource constraints (Oxenfeldt and Kelly; 1969; Oxenfeldt and Thompson,
1969; Hunt, 1973; Dant, 1995), to solve the agency problem (Rubin, 1978;
Klein et al., 1978; Mathewson and Winter, 1985; Brickley et al., 1991) and
to overcome information constraints and to save on search costs (Martin,
1988; Minkler, 1992). The major resources risked in the relationship with
the franchisees are the ones devoted to the development of the brand.
The franchisee is the founder and manager of a small business activity
distinguished by its conspicuously close relationship with another larger
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enterprise. The individual entrepreneur’s expectations of higher utility from
franchising as compared to independent business ownership as well as his
entrepreneurial skills, his attitude toward risk and his financial capital are
effective in his decision to franchise (Williams, 1999). The business
delivers an innovation to a locality that would not otherwise have access to
it, usually with a lower cost or higher level of service. The business features
the corporate strategy of the larger enterprise, the franchisor, who supplies
the franchisee with managerial input. The franchisee risks resources by
devoting them to the development of untried markets for the franchisor’s
brand.
The network formed by the parties is reinforced through the franchise
agreement. Through a contract, the franchisee purchases the rights to the
profits from a unit by paying an upfront fee and an ongoing sales royalty to
the franchisor. The uniqueness of the franchise contract creates an inter-
organisational business relationship that is different from other channel
relationships (Swenson et al., 1990). Anticipation of an ongoing
relationship, continuous exhange, operating standards and a unique business
concept are distinguishing characteristics of the contract (Sibley and Michie,
1982). The bias of the contract is towards the franchisor influencing the
location of power in the partnership (El-Ansary and Stern, 1972; Lusch,
1976; Forward and Fullop, 1993). Franchise contracts are typically standard
across franchisees with little room for negotiation (Lafontaine and
Kaufmann, 1994). They are used by the franchisor as a tool for effectively
managing the system.
The nature of the franchise contract is instrumental in demonstrating the
relative potentials of individual and corporate entrepreneurship for shifting
into an entrepreneurial mode. Franchise contracts define the territory to be
served by the franchisee; require the franchisee to purchase certain supplies
from the franchisor; require them to abide quality standards relating to the
product offered; define the product mix; and provide for the date and
conditions of termination of the franchise agreement. The contract imposes
limitations on the innovativeness and the growth potential of the franchised
business through defining the format, the operational procedures and the
boundaries of the market. The franchisee’s potential for exploiting its value
chain and creating technological innovation, new products, new ways of
production, marketing and distribution as well as new ways of structuring
and managing the organization is limited. The contract can be used as a tool
for coercive power by the franchisor (Sibley and Michie, 1982) and the
relationship may be terminated if the franchisee fails to comply with the
terms of agreement. The nature of the contract limits the strategic
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objectives and the growth of the franchisee and thus their potential to adopt
an entrepreneurial mode. Business format franchisors are observed to
achieve high growth in short spans of time regardless of the variation of the
emphasis on the growth objective over efficiency considerations among
franchisors (Carney and Gedajlovic, 1991). The business format franchisor
can be classified as an innovative entrepreneurial venture with high potential
for growth and innovation. In the franchise relationship, the franchisor has a
higher potential for shifting into an entrepreneurial mode.
CONCLUSION AND RESEARCH IMPLICATIONS
This article aimed to present a model of the strategic approach and the
entrepreneurial behaviour and activity in individual / corporate
entrepreneurship that leads to a positive leap forward relative to present
position. Planning and initiation of a new venture from a position of non-
existence to start-up and achieving a dramatic leap in growth beyond the
normal growth trend - like initiating a new growth stage at business
stabilization – are conceptualised as positive leaps forward relative to
present position. It is proposed that entrepreneurial / intrapreneurial teams
planning and initiating new ventures or achieving a dramatic leap in the
growth in ongoing ventures adopt a common and transitional strategic
approach and behaviour called the entrepreneurial mode. The inputs into
the model are innovation and opportunity driven visionary leadership with
central authority, dominant growth objective and tangible growth targets
that can surpass conventional logic, leveraging existing assets and
capabilities, traditional boundaries and concerns for survival that relate to a
projection of present. The process is strategic thinking dominated by a logic
of value innovation for offering unprecedented value rather than staying
ahead of competition. The strategic focus is on challenging industry
conditions, on dominating the market by innovation and pursuing a quantum
leap in value and on starting anew. The output of the model is a dramatic
leap in growth relative to present position. Opportunity driven enterprises
that can achieve a dramatic leap in growth in the face of uncertainty through
the utilization of the entrepreneurial mode are conceptualised as
entrepreneurial ventures.
The model of the transitional entrepreneurial mode is conceptualised to
apply to small businesses, their larger counterparts and network
organizations. It is proposed however that the characteristics of the business
institutions of individual, corporate and collective entrepreneurship imply
varying levels of capacity for adopting an entrepreneurial mode and for
transforming into an entrepreneurial venture. The business institutions in
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individual, corporate and collective entrepreneurship and the franchisor and
the franchisee and their network in business format franchising as examples
of these institutions are discussed for assessing their varying potentials for
shifting into an entrepreneurial mode. The analysis of the roles and the
relationship of parties in business format franchising leads to the conclusion
that relative to the business format franchisor, the capacity of the small
franchised business to shift into an entrepreneurial mode and to transform
into an entrepreneurial venture is limited, and that the franchisor can be
classified as an innovative entrepreneurial venture with clear strategic
objectives and high potential for growth.
The proposed model introduces a new perspective which seeks to integrate
economic and strategic approaches to entrepreneurship and to serve as a
frame of reference for developing a common understanding of individual,
corporate and collective entrepreneurship. The discussion of the model was
limited to a commercial context. It is assumed however that the model also
applies to the entrepreneurial behaviour in non-commercial contexts. Some
of the propositions made are supported by reasonably adequate evidence
while others are speculative and require additional research. The basic
premise of the model is that entrepreneurship is a complex and multivariate
phenomenon and that integrating the findings of theoretical and empirical
research results from related disciplines can contribute to the understanding
of entrepreneurship, and to the determination of the underlying variables of
entrepreneurial behaviour. The model can be used for developing measures
and operationalizing relevant constructs. The entrepreneurial partnership in
business format franchising and the behavioural tension stemming from
autonomy/dependence perceptions and the needs of the partners is a fruitful
area for research.
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