Journal of Small Business & Entrepreneurship, 2013

Vol. 26, No. 5, 481492, http://dx.doi.org/10.1080/08276331.2013.876763

Creating strategic commitment in franchise systems: establishing the

link between leadership, organizational structure, and performance
David Berkowitz* and Brent M. Wren
The University of Alabama in Huntsville, Huntsville, AL, USA
In this paper, we address the issue of strategic commitment in franchise systems by
exploring the impact of several structural and leadership characteristics. Specifically,
we examine the role of leadership style, organizational openness, and organizational
structure in the strategic commitmentperformance relationship. Our analysis is
accomplished through the use of traditional survey research methods with seven
franchise systems in multiple industries in the United States. We demonstrate that
more committed franchisees execute the corporate strategy and have more open
communication, which leads to greater performance. Finally, we formulate a set of
normative recommendations for how franchisors and franchisees can better organize,
communicate, and execute.
Keywords: franchising; strategic commitment; performance; leadership; organizational
structure
Nous abordons dans cet article la question de lengagement strat
egique dans les
systemes de franchise en
etudiant limpact de plusieurs caract
eristiques structurelles et
de leadership. Nous examinons plus particulierement le r^
ole du style de leadership, de
louverture organisationnelle, et de la structure organisationnelle dans la relation
strat
egique engagement performance. Notre analyse est r
ealis
ee en utilisant des
m
ethodes denqu^ete classiques aupres de sept systemes de franchise dans diverses
industries des Etats-Unis. Nous d
emontrons que les franchis
es les plus engag
es
ex
ecutent la strat
egie dentreprise et ont une communication plus ouverte, ce qui
conduit a des performances sup
erieures. Nous formulons enfin un ensemble de
recommandations normatives concernant la maniere dont les franchiseurs et les
franchis
es peuvent assurer une meilleure organisation, communication et ex
ecution.
Mots cl
es: le franchisage; engagement strat
egique; performances; leadership; structure
organisationnelle

Introduction
Franchising is one of the most recognizable and important forms of strategic alliance, and is
proving adaptable to a wide number of industries and professions. Many small businesses
looking to expand their unique style or concept will look at franchising as an alternative to
expansion. However, choosing to franchise brings a set of unique challenges. Specifically,
the loss of strategic control is paramount. Franchisors no longer determine all of the strategic
actions that are taken at a local level. The franchisee will need to operate strategically at the
local level in order to meet competitive pressures. Therefore, while franchising offers numerous advantages over other forms of business, franchisee relationships and improved strategic
*Corresponding author. Email: David.berkowitz@uah.edu
2014 Journal of the Canadian Council for Small Business and Entrepreneurship/Council de la PME et de lentrepreneuriat

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D. Berkowitz and B.M. Wren

planning are vital to the success of the franchise system. Franchised channels of distribution
face several obstacles which make these relationships difficult to manage effectively.
One of the primary issues is that the franchisor and franchisee often have strategic
goals which are not always congruent. However, commitment to super-ordinate goals
rather than acting in self-interest is crucial to system performance. Since the performance
of both parties is essential to the implementation of a strategy, it is of particular importance to understand how the franchisor and the franchisee come to a mutual understanding
of and commitment to a strategy. While the franchisor may develop corporate level strategies, it is ultimately the franchisee that is responsible for implementing them. If he/she
does not agree with, or is not committed to, corporate strategies, then execution of the
franchisors strategy will be limited.
In this paper, we address the issue of strategic commitment in franchise systems by
exploring the impact of several structural and leadership characteristics. We provide valuable guidance for the firm that is looking to franchise. Specifically, we examine the role of
leadership style, organizational openness, and organizational structure in the strategic
commitmentperformance relationship. While each of the constructs has been well
defined and used previously in the literature, no single study has sought to incorporate
them in a single model in a franchise setting. We expect to demonstrate that more committed franchisees execute the corporate strategy and have more open communication,
which leads to greater performance. In the following section, we will discuss the rationale
for the inclusion of the study variables and define hypothesized relationships. Finally, we
expect to formulate a set of normative recommendations for how franchisors and franchisees can better organize, communicate, and execute.
Theoretical foundations
The structural model is presented in Figure 1. In the following sections, relevant literature
supporting the model will be presented and hypothesized relationships will be discussed.

Figure 1. Structural model for the link between strategic commitment and performance.

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483

Strategic commitmentperformance
The development of shared strategic commitment to organizational goals and strategies is
critical in ensuring effective implementation and subsequent performance (Hambrick
1983; Mintzberg and Waters 1985; DiPietro et al. 2008). Mintzberg and Waters (1985)
state that, when the members of an organization share a common vision and identify so
strongly with it that they pursue it as an ideology, then they are bound to exhibit patterns
in their behavior, so that clear realized strategies can be identified (262). The implication
here is that when corporate strategic plans are developed through a process of mutual
input, internalization of corporate goals, and shared perspectives, organizational members
develop a cohesive attitude toward the superordinate goals of the organization (Blake and
Mouton 1961).
Strategic commitment also ensures that organizational members are devoting full
attention to the intended strategy rather than alternative strategies (Porter 1980; Guth and
MacMillan 1986; Wooldridge and Floyd 1990; Floyd and Wooldridge 1992). Without
commitment, those responsible for implementation may give the strategy low priority,
create implementation obstacles, or even sabotage the strategy (Guth and MacMillan
1986; Wooldridge and Floyd 1990). Finally, DiPietro et al. (2008) argue that even though
the franchisor has control the franchisee must commit to be successful. In keeping with
the logic just presented, the following hypothesis will be examined:
Hypothesis 1: Franchisee strategic commitment will have a positive effect on
performance.

Opennessindividual considerationstrategic commitment

The concepts of openness and individual consideration have a long history in the communications, organizational behavior, and leadership literatures, where they have been
shown to affect organizational culture and performance of individuals (Duncan 1972;
Spekman and Stern 1979; Hall 1980; Dwyer and Welsh 1985; Dwyer, Schurr, and Oh
1987). Openness is a term used to characterize an organizational climate of communication, trust, creativity, and participation. All members feel as though they are part of the
organization and have some degree of control over its future. Individual consideration
refers to a situation where a leader coaches followers based on their needs and spends
time treating each employee in a caring and unique way (Northouse 2013, 193). The end
result is that followers have a will and aspirations for self-development and have intrinsic
motivation to work toward organizational goals.
The overriding consensus is that participation in decision-making results in increased
organizational commitment (Morris and Steers 1980; Mathieu and Zajac 1990). This finding is echoed in the marketing channels literature by Anderson, Lodish, and Weitz (1987),
who suggest that feedback and mutual participation are crucial to achieving goal compatibility and subsequent commitment to goal achievement. In an exploratory study, Frazer
et al. (2013) propose that information dissemination has a positive effect. Specifically,
one franchisor in their study was quoted with the following . . .being a good franchisor is
about communicating. . . Thus, reducing the angst experienced by franchisees. This is
consistent with our belief that openness contributes to better understanding.
The end result is a better understanding of and commitment to the goals of the organization. Through this process, members come to feel as though they are part of the organization and have some degree of control over its future. Without the ability to rigorously
and openly discuss all matters relevant to the organization, the quality of the groups

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D. Berkowitz and B.M. Wren

activities will be lessened (Schweiger, Sandberg, and Ragan 1986). Based on this discussion, the following hypothesis was tested:
Hypothesis 2: Higher levels of openness will lead to higher levels of individual
consideration.
The concept of individual consideration suggests that franchise leaders can stimulate
appropriate actions by providing coaching and support to each follower as an individual
(Matey 1991). This attention tends to create a sense of self-worth and perceived importance, thereby increasing the franchisees desire to achieve organizational goals. Koza
and Dant (2007) report that good management skills benefit all members of the system
and allow for achievement beyond individual performance. We would also suggest that
the management skill mostly relies on the ability to lead.
Hypothesis 3: Higher levels of individual consideration will lead to improvements in
strategic commitment among franchisees.
Leadershipindividual consideration
Leadership in a franchise organization is different than in a traditional company since
planning and implementation responsibilities are separated by both geographic and structural control distances. In these situations, leaders must be willing to suspend their need
for control in favor of a more coordinative role (McGill, Slocum, and Lei 1992). The traditional emphasis on control rather than coordination tends to limit the amount of openness, creativity, and commitment in an organization because employees do not feel that
their input matters.
Leaders must follow a more transformational approach which seeks to develop the
personal mastery/efficacy of their employees (Seltzer and Bass 1990; Senge 1990;
McGill, Slocum, and Lei 1992; Kiernan 1993). The element of the transformational leadership literature seem most relevant to franchise organizations seeking to develop strategic commitment is inspirational leadership. Inspirational leadership suggests that
leaders must talk enthusiastically about what needs to be accomplished, and discuss the
actions necessary to be successful (Hater and Bass 1988). By doing so, inspirational leaders transmit a sense of mission, and stimulate a sense of purpose among employees.
Second, because of their ability to motivate employees intrinsically and create a sense
of empowerment, inspirational leaders cause employees to exert extra effort toward their
work activities and report higher levels of commitment (Seltzer and Bass 1990). When
franchise leaders can talk inspirationally to franchisees and communicate to them individually, franchisees feel more responsibility and their sense of attachment to the goals and
strategies of the system should be enhanced (Buchanan 1974; Salancik and Pfeffer 1977).
Based on this literature, the following hypotheses are tested:
Hypothesis 4: Franchise leaders who demonstrate higher levels of inspirational leadership will generate greater feelings of individual consideration among franchisees.
Organizational structurestrategic commitment
Within the marketing and management literature, organizational structure is typically
assessed by measuring the level of formalization (the existence of formalized rules and
procedures) and centralization (the extent to which decision-making authority is located
at one vertical level) (Gaski 1984; Ruekert, Walker, and Roering 1985). Centralization is

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generally thought to improve effectiveness because it gives the decision-maker the ability
to plan, coordinate, and control all activities (Hage 1965; Ruekert, Walker, and Roering
1985). Centralized control also allows for the development and dissemination of a consistent message by upper management. The result is greater perceived competence and
inspiration on the part of followers.
The role of formalization is a little less clear. Many studies have demonstrated that
formalization leads to greater efficiency because the predefined rules and procedures
serve to routinize repetitive activities and transactions (Pugh et al. 1968; Ruekert, Walker,
and Roering 1985). However, recent evidence has suggested that the benefits of a formal
control may not be universal, due to the potential limitations placed on employee behavior and commitment at the local level.
High levels of formalization (lack of local control) can constrain strategic commitment
in at least two ways. First, while high levels of formalization might serve to increase the
control of some channel members, it necessarily decreases the amount of self-control and
autonomy of others (John 1984). This has been shown to decrease the amount of satisfaction and motivation on the part of the latter party (Blaumer 1964; Hage and Aiken 1967;
Dewar and Werbel 1979). The loss of autonomy further serves to create frustration and
feelings of neglect among channel members. As this occurs, the extent of shared beliefs
decreases and organizational members will be less committed to the implementation of corporate strategies (John 1984). Maxwell and Steele (2003) show that feeling important and
organizational dependence allowed hotel managers to have higher levels of commitment.
The second way in which formalization affects commitment is through the lack of
involvement in the planning process. This separation from the planning process can affect
the organizational members awareness of the salient details and purposes of organizational strategies. Research has shown that when organizations are highly formalized,
salespeople develop uncertainty about how to do their job (Behrman and Perreault 1984).
If organizational members do not understand the organizational strategies they may be
unwilling or unable to take actions which are consistent with them. Thus, local control
affects channel member strategic commitment through their awareness of corporate strategies and their willingness to act toward the implementation of those strategies (commitment) (Cadotte and Stern 1979).
Based on the preceding discussion, the following hypotheses are tested:
Hypothesis 5: High levels of centralization will have a positive effect on perceived level
of inspiration leadership.
Hypothesis 6: Higher levels of centralization will lead to lower levels of local control.
Hypothesis 7: Higher levels of local control will have a positive effect on strategic
commitment.

Research methodology
Our analysis is accomplished by the use of traditional survey research methods with seven
franchise systems in multiple industries in the United States.
Thus, specific items were selected from the above constructs and modified to meet the
constructs under investigation of the current study. The item list (62 items) was reduced
to a more manageable number (35 items) after review and analysis. Attitudinal items
used a 7 or 5 scale response format. Items in each construct were reversed in accordance

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with the recommendations of Churchill (1979). In addition, the order of the items was
randomly assigned.

Sample
The hypothesized research model was tested with data gathered from approximately 459
franchisees, representing seven (7) firms across five (5) product/service industries. This
sampling frame was drawn from the International Franchising Associations (IFA) membership list. The IFA is an organization of 800-plus franchisors who have joined together
to promote franchising in the United States and abroad.

Study measures
The measurement of study constructs was accomplished via the use of both previously
established and original scale items. Whenever possible, existing scales have been used
or modified slightly for the purposes of the present study. Table 1 contains a summary of
measurement scales.

Reliability and unidimensionality

Reliability is regarded as the consistency or repeatability of the response. Of the many
coefficients, Cronbachs alpha is probably the best known. A better measure of the consistency with which an item measures an underlying construct, within the confirmatory factor analysis approach, is that proposed by Fornell and Larcker (1981), which expresses
the proportion the observed variance of the total (Peter 1979). Below both methods of
analysis are presented.
Each factor was analyzed (except for the performance measures) and reliability was
assessed. After review of each individual construct, some items were eliminated. The
result was six factors. The rotated factor solution explains 63.3% of the cumulative variance. The factor analysis was accomplished using Principle Components analysis with a
Varimax Rotation and Kaiser Normalization. The rotation converged in 6 iterations.
There are two measures to help determine if the factor analysis is warranted. First is
the KaiserMeyerOlkin (MKO) measure of sampling adequacy. This index compares
the magnitudes of the observed correlation coefficients to the magnitudes of the partial
correlation coefficients (refer to SPSS Users Guide). Specifically, larger values indicate
that a factor analysis is appropriate. For our analysis the MKO is .872 which is a large
value and thus it is appropriate to use factor analysis.
The second indicator of the strength is the Bartletts test of sphericity. This test measures the relationship among variables. More specifically it is used to test the null
Table 1. Summary of measurement scales.
Scale
Strategic commitment
Openness
Local control
Centralization
Leadership

Source
New scale
New scale
Hage and Aiken (1967)
Hage and Aiken (1967)
Bass and Avolio (1993)

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hypothesis that the variables in the population correlation matrix are uncorrelated. In our
analysis, the observed significance level is .000. Therefore, we reject the null hypothesis
which supports the conclusion that the strength of the relationship among variables is
strong and it is appropriate to use factor analysis.
Since we had two new constructs being introduced, we analyzed the factor loadings to
ensure that all items were correctly loading on a single factor. It is not uncommon to eliminate items that load on multiple factors. This practice allows researchers to develop scales
that are valid and reliable. For items that loaded on two or more factors, we constrained our
evaluation to loadings that were greater than .4. If an item loaded on two or more factors
with each loading being greater than .4, it was considered cross-loaded. For the Strategic
Communication construct this required that we eliminate 1 item from our scale. For the
Open Communication construct we eliminated 3 items. In each case, we were left with scales
that were reasonable in size and were reliable. This created two new scales in the process.
One final confirmation of a six-factor solution is the scree plot. The scree plot is used
to help determine the appropriate number of factors for an analysis. The scree plot resembles an elbow and factors in the solution that are after the point of the bend are not considered. The plot shows that a six-factor solution is appropriate for this analysis.
The first test of reliability used is calculation of Cronbachs alpha (Cronbach 1951).
Cronbachs alpha is regarded as the lower bound on reliability for a set of congeneric
measures (Bollen 1989). It assumes each of the items within the scale contributes equally
to the underlying trait (Zeller and Carmines 1980). Two drawbacks to alpha are as follows: (1) it underestimates the reliability of congeneric measures and (2) it is not for use
with single indicators. The alphas are reported in Table 2. As indicated by the reliabilities,
the measures are relatively homogeneous for the construct they purport to measure. Typically, reliabilities greater than .7 are considered adequate for measurement analysis
(Nunnally 1978). The second test used was a confirmatory factor analysis of the measurement model. For this test of reliability, each item was used for each of the constructs and
fit to a model that is presented later.

Analysis of measurement model

AMOS 4 (Arbuckle 1999) was used for the analysis of the measurement model. For indicators used in the measurement model, Bollen (1989) suggests that the Squared Multiple
Correlation is a straightforward measure of reliability. According to Fornell and Larcker
(1981), the magnitude of this coefficient should be greater than .5, which implies that
more than 50% of the variance of the items is related to the trait being measured. The
average SMCs for each construct are reported in Table 2. All of the constructs except the
Strategic Commitment construct either meet or are very close to meeting the standard set
by Fornell and Larcker (1981).
Table 2. Scale reliability.
Factor
Openness
Inspirational leadership
Consideration
Local control
Centralization
Strategic commitment

Number of items

Alpha

Average SMC

3
4
7
4
3
7

.822
.85
.903
.749
.67
.817

.616
.548
.570
.499
.416
.356

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D. Berkowitz and B.M. Wren

Overall model fit

Following the a priori specification of the dimensions, a confirmatory factor analysis
(CFA) approach was used to analyze model fit, convergent, and discriminant validity.
The overall model is hypothesized to have six constructs. The overall model results are
reported in Table 3. The RMSEA is .062 and its associated p-value (P .000) indicates
that the data fit the model reasonably well (Pedhazur and Pedhazur-Schmelkin 1991;
Joreskog and Sorbom 1992).
However, reliance on just one statistic has been criticized by some (see for instance,
Fornell and Larcker 1981). Other measures of interest are the reported in Table 3 as well.
Each measure along with the Root Mean Square Error of Approximation RMSEA (.062)
is within the acceptable limits. The point estimate of the RMSEA is of .062 and the upper
confidence limit of .066 are well under the .08 value suggested by Browne and Cudeck
(1993) and is considered to be representative of good model fit (Joreskog and Sorbom
1992). A final indicator of the good fit is an ECVI for the model that is 3.52, which is less
than the value for the saturated model (3.565). Thus, we can conclude that the model fits
well and represents a close approximation in the population (Joreskog and Sorbom 1992).

Validity of the measures

Traditionally, validity is the degree to which you measure what you intend to measure.
Many types of validity have been expressed including (but not limited to) content, construct, convergent, discriminant, predictive, etc. Each of these is, in some fashion,
assessed by correlations of the items (or set of items) with other items, or sets of items.
Rather than a single, agreed upon definition and coefficient to measure the validity of a
scale, various evidences are provided each of which may have a separate definition and
coefficient.
Within the CFA approach, it is not necessary to administer a separate set of scales to
determine the validity; it is possible to provide evidence of validity without doing so. For
example, Venkatraman (1989) considers each of the indices of model fit previously discussed evidence of unidimensionality and convergent validity (953). Bollen (1989)
presents several ways that might be indicated; two of which are the standardized and
unstandardized parameter estimates of the relationship between the indicator (item) and
the latent variable; the t-values for each of these are significant at the p < .05 level.
Another concern is discriminant validity and convergent validity, which are concerned with evaluation of the indicators and whether they measure the constructs they are

Table 3. AMOS results-fit statistics for measurement model and goodness of fit statistics.
Chi-Square with 486 Degrees of Freedom 1262.373 (P .000)
Root Mean Square Error of Approximation (RMSEA) .062
90 Percent Confidence Interval for RMSEA (.058; .066)
P-value for Test of Close Fit (RMSEA < .05) .00
Expected Cross-Validation Index (ECVI) 3.52
90 Percent Confidence Interval for ECVI (3.279; 3.779)
Normed fit index .966
Relative fit index .961
Incremental fit index .979
TuckerLewis index .976
Comparative fit index .979

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intended to measure. Campbell and Fiske (1959) require for convergent validity that correlations of different measures of the same trait be statistically significant and sufficiently
large. For discriminant validity, comparisons of the measures in the correlation matrix
are required. Correlations with the other measures of the same construct should be greater
than the correlations between measures of the other constructs. After examination of the
correlation matrix, it was demonstrated that correlations between measures of the same
construct (for example, inspire1 and inspire2 .655) are greater than the correlations
between measures of different constructs (for example, inspire1 and openness1 .156). In
addition, the correlations are large and statistically significant. Therefore, both discriminant and convergent validity have been demonstrated. Thus, based on the evidence, it is
concluded that the measures developed for this study demonstrate sufficient levels of reliability and validity.

Structural model analysis and results

The standardized regression coefficient results are shown on the structural model diagram
in Figure 2. Since our model fits the data well we also find that our theoretical expectations are confirmed. All of our hypothesized structural relationships are supported except
for the link between Local Control and Strategic Commitment. While the sign is in the
hypothesized direction (positive) the link is not significant. This is curious. However, we
realize that the relationship could be insignificant due to the fact that local franchisee control allows for the option of having strategic commitment but only at a level that is congruous with the franchisees own strategic direction. Thus, the result could be
confounded, yielding the insignificant result.

Figure 2. Standardized regression coefficients for the structural model.

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Discussion
The data collected from our research demonstrate that franchisors can have an impact on
strategic commitment of their franchisees and the performance. We demonstrate there is
a link between leadership style, organizational openness, and organizational structure in
the strategic commitmentperformance relationship. Our structural model demonstrated
that the leadership style has a direct impact on strategic commitment and franchise performance. The effect was both positive and significant implying that the leader has the ability to influence the performance of the franchisees even though the franchisee has some
level of control over their operations.
Specifically, we expected that leadership in a franchise organization is different than
in a traditional company. Franchise leaders must be more interested in coordination rather
than control. Also franchisors must be willing to support franchisees allowing them to be
self-aware and proactive problem-solvers. In the end the franchisors must create an atmosphere that develops a sense of self-worth, empowerment, and dedication. The culture
results in franchisees that are more creative, provide more input into organizational problems, and tend to be more committed to organizational decisions.
Additionally, the organizational structure has an impact on the commitment and performance of franchisees. We demonstrate that when decision-making is centralized at
one level, it has a negative impact on the local franchise operations. However, there is a
positive impact on the inspirational leadership style.
Openness characterizes an organizational climate of communication, trust, creativity,
and participation. It has a positive impact on consideration which leads to strategic commitment. Thus, members of the franchise system feel as though they are part of the organization and have some degree of control over its future. Our results demonstrate that openness
creates a better understanding of and commitment to the goals of the organization.
We find a positive link between strategic commitment and performance. Our notion
that when franchisors and franchisees are committed to the same strategy that performance of the organizational system will be enhanced is supported. While we did not have
a significant link from franchisee control to strategic commitment the sign of the parameter was appropriate. Thus, both influences on strategic commitment are avenues for
enhancing system performance.
In summary, our model shows that performance is linked to strategic commitment
which in turn can be influenced by the franchisor and potentially the franchisee. The leadership style has a positive impact on strategic commitment as well. Inspiration and openness are positive influences. Franchisor mangers ability to inspire and be open with
franchisees will lead to positive commitment and performance.
Acknowledgements
The authors wish to thank the reviewers and editors for their insightful comments and help in
providing guidance with the preparation of this manuscript.

Notes on contributors
Dr David Berkowitz is the Dean of Graduate Studies and professor of marketing at the University
of Alabama in Huntsville. His research interests include innovation and entrepreneurship.
Dr Brent M. Wren is the associate provost and associate professor of marketing at the University
of Alabama in Huntsville. His research interests include franchising, market orientation, and
entrepreneurship.

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491

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