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FRANCHISING AND ORGANIZATIONAL PERFORMANCE: EMPIRICAL INVESTIGATION OF SELECTED FAST FOOD RESTAURANTS IN NIGERIA
Department of Business Administration College of Management and Social Sciences Osun State University P. M. B. 2008, Okuku Osun State, Nigeria Email: oluojoe@yahoo.com

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Olu Ojo

Technology Planning And Development Unit Obafemi Awolowo University Ile-Ife, Osun State, Nigeria Email: iirefin@oauife.edu.ng

I. A. Irefin

Abstract
This study tries to gain insight into the relationship between franchising and organizational performance using selected fast food restaurants in Nigeria as case study. It specifically investigates the effects of franchising types and franchising ownership on organizational performance. This research work was undertaken in order to fill the existing gap in literature with regards to the effects of franchising types and franchising ownership on organizational performance. Thus, this study will add to the existing level of understanding on the subject of investigation and add to the existing literature on the subject especially in underdeveloped countries where such study is not popular. The survey research design was employed. Primary data were used and they were collected through the administration of question to our respondents. Data collected were analyzed using descriptive method and simple percentage. Three hypotheses were advanced and tested with the aid of correlation coefficient. The findings show that there is positive relationship between franchising types and organizational performance and that positive relationship also exists between franchising ownership and organizational performance. The author concludes by saying that franchising as a business form is fast becoming the in thing in Nigerian business arena and it is therefore a good investment opportunity for upcoming entrepreneurs. Key words: Franchising, business organizations, franchising relationships, organizational performance, franchising types, and franchising ownership.

Franchising occupies a prominent position in contemporary business world and increasingly provides a common channel for firm growth, entrepreneurial wealth creation, and national development. In a competitive market each business organization must strive to sell its products and/or services by creating a competitive edge over its competitors via multi product development, price variation and market segmentation. The various franchising types have their cost and benefit owing to product differentiation, creation and affiliation requirements and therefore, the most suitable type to be chosen by various interested parties becomes critical. Therefore people seek to find the most suitable and most productive for their franchise business that will yield returns and improve quality and effectiveness in a competitive

environment. The ownership of the franchise relationship is also very important. Countries with centralized and rigid organizational system like France and China will prefer that ownership be given to the franchisee and royalties be paid to the franchiser periodically and this could lead to lower quality levels or higher prices in franchised outlets. The other which is ownership with the agent, will also increase contracting cost and thus costlier to write contracts and enforce, than those with employed managers by the franchiser. Therefore, this conflict in the moderate, total and even non ownership of the franchise by either the principal or the agent has become a problem to be solved. Based on the above research problems, this study is expected to provide answers to the following questions: (i) How does franchising types affect the performances of

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both the franchiser and franchisee? (ii) Does franchising ownership model have effect on return on investment of the franchiser and franchisee? And (iii) What is the effect of franchising relationship on organizational performance? In order to answer the above research questions, the general objective of this research is to explore the extent to which franchising relationship can affect organizational performance. The specific objectives of this study are (i) To examine the effect of franchise types on franchise performance within a highly competitive environment. (ii) To ascertain ownership models of franchising relationship towards organizational performance. And (iii) To examine the effect of franchising relationship on organizations performance. Franchising has received a great deal of attention over the past few years. Despite the plethora of research on franchising, some important gaps exist in our understanding of this important organizational form. Although some studies provide a useful starting point for research, there are other factors associated with success that are unique to franchising that should be considered. These include the effect of franchising types on the performances of both the franchiser and franchisee, and the effect of franchising ownership model on the return on investment of the franchiser and franchisee? A number of studies provide support for the assumption of greater franchise success (for example, Castrogiovanni, Justis, and Julian 1993; Justis, Castrogiovanni, and Chan 1992). However, other recent studies are critical of this position and argue that franchises exhibit higher rates of firm discontinuance and lower mean profitability than independent businesses (Bates 1995). To date the evidence is mixed. Because of these contradictory results, the question of whether franchising type and franchising ownership improves or worsens franchising performance is still worthy of further research such as the one undertaken in this study. Besides, most of the existing studies on franchising were conducted in developed countries using archival data. This means that there is a major gap in the relevant literature on developing and underdeveloped countries in which Nigeria rightly belongs to that has to be covered by research. This research tries to fill this gap by studying the situation of Nigerian fast food industry and providing more empirical evidence on franchising performance.

Literature Review
A number of strategies are available to the entrepreneur for the expansion of his venture. However, one of these

strategies that are commonly ignored by entrepreneurs in the new venture expansion is franchising (Ojo, 2008). Although, franchising is a remarkable organizational form, in the common economic parlance, it is a hybrid organizational form of business ownership (Ojo, 2009). Different definitions have been given to franchising by different people over time. Hisrich, Peters and Shepherd (2005) see franchise as a form of new entry that can reduce the risk of downward loss for the franchise. They see franchising as an alternative means by which an entrepreneur may expand his or her business by having others pay for the use of the name, process, service etc. It can be used as a growth mechanism by the organization (i.e. franchiser). Franchising dates back to at least 1850s; when Isaac Singer, who made improvements to an existing model of a sewing machine, wanted to increase the distribution of his sewing machines. His efforts, though unsuccessful in the long run, was among the first franchising effort in the United States. Slightly later, yet much more successful, example of franchising was John Pembertons franchising of Cocacola. Early American examples include the telegraph system, which was operated by various railroad companies but controlled by western union, an exclusive agreement between automobile manufactures and operators of local dealership. Modern franchise came to prominence with the rise of franchised-based food service establishments. This trend started as early as 1919 with quick service restaurants such as A&W Root Beer. In 1935, Howard Deering Johnson teamed up with Reginald Sprague to establish the first modern restaurant franchise. The idea was to let independent operators use the same name, food, supplies, logo and even building design in exchange for a fee. The growth in franchises picked up steam in the 1930s when such chains as Howard Johnson started franchising motels. The 1950s saw a boom of franchise chains in conjunction with the development of Americans interstate highway system. Fast food restaurant, motel chains exploded. In regards to contemporary franchise chains, Mc Donalds is arguably the most successful worldwide with more restaurant units than any other franchise network (IkeOkoh, 2006). Business format franchising, a type of franchise in 19th century, took off in 1850s. Business format franchising is the form of franchising most commonly associated with the franchise concept (Alon, 2004). A franchiser licenses an entire way of doing business under a brand name. This variety of franchising is prevalent in accounting services, auto accessories, auto

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rentals, campgrounds, cleaning systems, fast food, food retailing, motels/hotels, real estate, and schools. Business format franchising involves packaging a mode of business, attracting a supply of capable and dedicated entrepreneurs, selecting superior prospects, training them in the minute details of the business operations, providing assistance in setting up the business at specific outlets, and maintaining an ongoing business that is profitable for the franchisor and the collective franchises. The relationship entails continued provision of beneficial services such as advertising and new product development by the franchises and continued provision of royalties from the franchisees to the franchisors. Business format franchising represents a complete package that allows the franchisee to use the format provided by the franchiser, while retaining independence as a business. The franchiser typically sells the franchisee a right to use his intellectual property in return for a lump sum payment and an annual royalty fee based on sales for a specified period of time (Miller and Grossman, 1990). In addition, the franchisee usually agrees to adhere to franchiser requirements for product mix, operating procedures and site selection (Rubin, 1978). Business format franchising is a popular example of a hybrid organizational format that incorporates elements of both markets and hierarchies (Williamson, 1991). It is a hybrid alternative since the franchiser and franchisee both retain a degree of ownership and authority over the use of the trade name, operating procedures and the location of outlets and contracts with independent entrepreneurs to operate the units (Child, 1987). Franchising as a business seems to have achieved more respectability in the fast food industry than ever before as some franchised brands command noticeable lead today in terms of awareness, product strength and value. The growth of the fast food industry in Nigeria has been energetic with Tantalizer, Captain Cook, Sweet Sensation and Mr. Biggs are among the most recognized franchise chains featuring more up from market local menu. It is important to note that the Nigerian fast food market is still in its infant stage, far from maturity.

Trade name or trade marks Financial management system for controlling the financial revenue Managerial advice from experts in the field Economies of scale for advertising and purchasing Head office services A tested business concept

Methods and Materials

This section describes the research methodology used in the study. Survey research design was utilized in this study. The theoretical population of study consists of all the franchised fast food restaurants in Lagos State. The choice of Lagos State stems from the fact that it is the commercial centre of Nigeria and that overwhelming majority of franchised fast food restaurants were concentrated in Lagos State. The office in charge of regulating franchise business in Lagos State reveals that there are about twenty five (25) franchised outlets existing in Lagos State. Therefore these franchised outlets were the theoretical population. Our study population consists of the entire staff of 25 registered franchised fast food restaurants in Lagos State. Both probability and nonprobability sampling methods were used. Stratified probability sampling method was used to classify the staff of the franchised restaurants into three groups: lower level management, middle level management, and top level management. Combination of convenience and judgmental nonpropability sampling methods were used to select our sample elements. These methods allow a large number of respondents to participate in the research over a short period of time (Ojo, 2003). Primary method of data collection was used in this study. The data consists of a number of items in structured questionnaire that was administered to the respondents. We also utilized 5-point Likert scale in our questionnaire. The decision to structure the questionnaire is predicated on the need to reduce variability in the meanings possessed by the questions as a way of ensuring comparability of responses. The questionnaire is titled Franchising and Organizational Performance Questionnaire. Two hundred and seventyfive (275) respondents were selected for the study. However, only 230 of them filled their questionnaire and returned it and were used for final analysis in the study. This means that the return rate of completed questionnaire was 83.6%. To ensure the validity and reliability of the questionnaire used for the study, even numbers of experts were consulted to look at the questionnaire items in relations to its ability to achieve the research objectives, level of coverage,

What May be Bought in A Franchise

According to Hisrich et al. (2005), what you may buy in a franchise as a franchisee includes: A product or service with established market ad favorable market, A patented formula or design,

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comprehensibility, logicality, and suitability for prospective respondents. Data collected from the questionnaire were analyzed with the aid of descriptive statistical techniques such as total score and simple percentage, while inferential statistics such as correlation coefficients was used to proof the level of significance in testing stated hypotheses.

Data Presentation, Analysis and Results

All the items in the questionnaire were analyzed. However, only the key ones featured in this section.
Table 1: Age Distribution of Respondents
Cumulative Percent Frequency

Table two above presents the position of the respondents on the organizational hierarchy. The table reveals that 17.4 of the respondents are at the lower level management. The bulk of the respondents (78.3%) are in the middle level management, while the remaining 4.3% of the respondents are in the top level rung of the organization. This shows the highest responses came from the middle level managers in the organization.
Table 3: This type of Franchising Relationship Increases profits
Cumulative Percent Frequency

Percent

Percent

Valid Percent

Age of Respondents

Valid

SD D U A SA Total

10 40 10 100 70 230

4.3 17.4 4.3 43.5 30.4 100.0

Valid Percent

4.3 17.4 4.3 43.5 30.4 100.0

4.3 21.7 26.0 69.5 100.0

Valid

Below 20 Years 21- 40 Years 41 - 60 Years Total

20 180 30 230

8.7 78.3 13.0 100.0

8.7 78.3 13.0 100.0

8.7 87.0 100.0

Source: Field Survey, 2009.

Source: Field Survey, 2009.

From the above table it can be observed that 8.7% of the respondents fell within the age bracket of less than 20years. Overwhelming majority of the respondents (78.3%) are in the age bracket of 21 to 40 years. The remaining 13.0% of the respondents are within the age bracket of 41 60 years. This clearly shows that the larger percentages of the respondents are young persons in the middle of their career.
Table 2: Respondents Position in the Organization
Cumulative Percent Frequency

According to the table 3 above, 4.3% of the respondents strongly disagree with the statement. 17.4% of the respondents disagree with the statement, and 4.3% of the respondents are undecided about the statement. Of the remaining 73.9% of the respondents, 43.5% of them agree with the statement and 30.4% of them strongly agree with the statement. This indicates that majority of the respondents are either agree of strongly agree with the statement.
Table 4: Type of Franchising has Effect on Money Invested in the Business
Cumulative Percent Frequency

Percent

Valid Percent

Percent

Valid

Valid Lower Level Management Middle Level Management Top Level Management Total

40 180 10 230

17.4 78.3 4.3 100.0

17.4 78.3 4.3 100.0

17.4 Valid 95.7 100.0 SD D U A SA Total

30 20 20 100 60 230

13.0 8.7 8.7 43.5 26.1 100.0

Valid Percent

Respondents Position in the Organization

13.0 8.7 8.7 43.5 26.1 100.0

13.0 21.7 30.4 73.9 100.0

Source: Field Survey, 2009.

Source: Field Survey, 2009.

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July Cumulative Percent

Table 4 above reveals that 13% of the respondents strongly disagree that the type of franchising has effect on money invested in the business, 8.7% of the respondents disagree with the statement, while another 8.7% of the respondents are undecided about the statement. Majority of the respondents (43.5%) agree with the statement while additional 26.1% of the respondents strongly agree with the statement. The inference that can be drawn here is that the type of franchising has effect on money invested in the business if we go by the respondents opinion.
Table 5: The Ownership by Franchisee Agents Increases Return on Capital Employed
Cumulative Percent Frequency

Percent

SA Total

60 230

26.1 100.0

Valid Percent

26.1 100.0

100.0

Source: Field Survey, 2009.

Valid

SD D U A SA Total

10 20 40 100 60 230

4.3 8.7 17.4 43.5 26.1 100.0

4.3 8.7 17.4 43.5 26.1 100.0

4.3 13.0 30.4 73.9 100.0

According to the table 6 above, 4.3% of the respondents strongly disagree that profit is maximized when higher ownership is vested with the franchisee. In addition, another 4.3% of the respondents disagree with the statement. 13% of the respondents are undecided about the statement. However, overwhelming majority (52.2%) of the respondents agree with the statement while the remaining 26.1% of the remaining respondents strongly agree with the statement. Thus, we can conclude that profit is maximized when higher ownership is with the franchisee.
Table 7: Franchising Leads to Positive Corporate Performance
Cumulative Percent Frequency

Percent

Valid Percent

Percent

Source: Field Survey, 2009.

Valid

SD D U A SA Total

30 20 20 100 60 230

13.0 8.7 8.7 43.5 26.1 100.0

Valid Percent

13.0 8.7 8.7 43.5 26.1 100.0

13.0 21.7 30.4 73.9 100.0

In table 5 above, 4.3% of the respondents strongly disagree that ownership by franchise agents increases return on capital employed. A total of 8.7% of the respondents disagree with the statement. 17.4% of the respondents are undecided about the statement. 43.5% of the respondents agree with the statement. The remaining 26.1% strongly agree with the statement. Based on the above data, we can confidently say that ownership by franchise agents increases return on capital employed.
Table 6: Profit is Maximized when Higher Ownership is with the Franchisee
Cumulative Percent Frequency

Source: Field Survey, 2009.

Percent

Valid

SD D U A

10 10 30 120

4.3 4.3 13.0 52.2

Valid Percent

Table 7 above presents the respondents feedback to the effect of franchising on corporate performance. 13.0% of the respondents strongly disagree that franchising leads to corporate performance, while another 8.7% of the respondents disagree with the statement. Another 8.7% of the respondents are undecided about the statement. Among the remaining respondents, 43.5% of them agree with the statement while 26.1% of them strongly agree. Thus, we can inferred that franchising leads to positive corporate performance.

4.3 4.3 13.0 52.2

4.3 8.6 21.6 73.8

Testing of Hypothesis
Our three hypotheses were tested using correlation coefficient.

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Hypothesis 1
H1: There is a significant relationship between franchise types and organizational performance.
Table 8: Correlation Between Franchising Types and Organizational Performance
Types Types Pearson Correlation Sig. (2-tailed) N Performance Pearson Correlation Sig. (2-tailed) N 230 .363(**) .089 230 230 1 Performance .363(**) .089 230 1

The analysis above shows that there is a positive correlation between the two variables, franchisee ownership and organizational performance [r = .570(**); N = 23], meaning that the relationship is positively related.

Hypothesis 3
H1: Franchising relationship has effect on organizational performance. In order to test the significant relationship between franchising relationship and organizational performance the Pearson product moment correlation was used. Our data were combined and analyzed to check the relationship and strength of the relationship between franchising and organizational performance. The analysis is as presented below:
Table 10: Correlation Between Franchising Relationship and Organizational Performance
Types Performance

(**) Correlation is significant at the 0.01 level (2-tailed).

The analysis above shows that there is a positive correlation between the two variables: franchising types and organizational performance [r = .363(**); N = 230], meaning that the relationship between them is positive.

Franchising Relationship

Pearson Correlation Sig. (2-tailed) N

.535(**) .009

Hypothesis 2
H1: The franchisee ownership has effect on organizational performance. Here franchisee ownership was correlated against corporate performance. The outcome is presented in table 9 below.
Table 9: Correlation Between Franchisee Ownership and Organizational Performance.
Types Owners hip Pearson Correlation Sig. (2-tailed) N Performance Pearson Correlation Sig. (2-tailed) N 230 .570(**) .005 230 230 1 Performance .570(**) .005 230 1

230 .535(**) .009 230

230 1

Performance

Pearson Correlation Sig. (2-tailed) N

230

(**) Correlation is significant at the 0.01 level (2-tailed).

From the above table, the analysis shows that there is a positive correlation between the two variables, franchising and organizational performance [r = .535(**); N = 230), meaning that franchising and organizational performance are positively correlated. In all the three instances, we accept our hypotheses.

Discussion of Findings
As said earlier, this study focused on a research into franchising and how it affects the profits of an organization operating it. Based on analyzed data, the findings in this study include the followings: i. The larger percentage (78.3) of the respondents are young persons in the middle of their career. Their age bracket is 21to 40 years. ii. The bulk of the respondents (78.3%) are in the middle level management of the organization..

(**) Correlation is significant at the 0.01 level (2-tailed).

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iii. Majority of the respondents either agree (43.5%) or strongly agree (30.4%) with the statement that business format type of franchising relationship has effect on money invested in the business and also increases profits. iv. In addition, 43.5% of the respondents agree while another 26.1% of the respondents strongly agree that ownership by franchisee agents increases return on capital employed. v. It is also discovered that 52.2% of the respondents agree and 26.1% of the respondents strongly agree that profit is maximized when higher ownership is with the franchisee. vi. Besides, 43.5% of the respondents agree and another 26.1% of the respondents strongly agree that franchising leads to positive corporate performance. vii. Finally, all the three hypotheses tested reveal positive correlation between business format type of franchising and organizational performance, ownership type and organizational performance, and franchising relationship and organizational performance.

Conclusion
Recent trends in the business environment have brought about innovative ways in which firms can take the lead in their industry even in the face of great competitors. The conclusion that is drawn from this study is that organizations that are currently operating franchising as a business arrangement are making large profits and are gaining even stronger brand names through it. By maintaining the same standards operated in the parent company, in all their franchises they stand a greater chance of maintaining their customer loyalties. Franchising is fast becoming the thing in the business arena in Nigeria as more and more companies are being drawn to it as a good strategy for distributing their products and raising better awareness for their companies.

References
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