Executive summary of “Value co-creation through knowledge exchange in franchising”

Citation

(2014), "Executive summary of “Value co-creation through knowledge exchange in franchising”", Journal of Services Marketing, Vol. 28 No. 2. https://doi.org/10.1108/JSM-02-2014-0068

Executive summary of “Value co-creation through knowledge exchange in franchising”

Article Type: Executive summary and implications for managers and executives From: Journal of Services Marketing, Volume 28, Issue 2

This summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present.

Franchising is not just about selling burgers and fries to customers. It is also about developing and perfecting the know-how associated with a business system and then selling that know-how to prospective franchisees. Franchisees, in turn, provide the vital local market knowledge along with capital and human resources. The goal is to synergistically capitalize on the know-how of the franchisor and franchisees (and the customer) and successfully apply the tried and tested business model offered by the franchisor in diverse markets. In other words, the key to franchise success seems to be managing (e.g. developing, perfecting, disseminating, and improving) an intangible resource (i.e. knowledge or know-how) across independent entities linked in a contractual relationship.

Knowledge sharing helps franchisors ensure that franchisees understand the business model, adhere to tried and tested scripts, and conduct operations effectively. This helps protect against the dilution of the franchise brand as the franchise “network” seems to offer a relatively safe business model with significant embedded knowledge (delivered through training and information) for the franchisee, that typically is a small to medium enterprise.

Research, although extensive, has tended to be somewhat skewed towards the franchisor, with franchisees and end customers seen as a passive operand resource, i.e. resources that are manipulated by the franchisor to create value. However, in a franchising network, like any other network, value is co-created by key actors and each brings specific operant resource to bear on the co-creation process.

In “Value co-creation through knowledge exchange in franchising” Professor Audhesh K. Paswan et al. argue that if the franchisor operates within a narrow perspective several problems can occur. For example, both franchisees and customers could fall into the wait-and-watch mindset. One way to prevent this is to look at the entire franchise network as a value-creating process and treat all network members – specifically the franchisor, franchisees and customers – as key sources of operant resources. To that end, the paper introduces knowledge as the key operant resource in the value creation process and, recognizes the franchisor, the franchisees and the customers as unique contributors.

The authors identify six resources that customers can contribute to the co-creation of value – personal expertise, need to exercise control, requisite physical capital, risk-taking ability, psychic and economic benefits. Further, customers could provide knowledge about the unique value they seek with each exchange experience and knowledge about how they perceive the focal franchise unit in comparison to competing providers of the service. These customer knowledge parcels typically are tacit and highly contextual (e.g. needs, wants, and comparative benchmarks). Hence, the value that the customer can extract from the transaction is not only a function of what the franchisor and franchisees do, but also a function of the customer’s participation and knowledge contribution. It is not difficult to visualize two customers visiting a Starbucks franchise and realizing different values for themselves and in turn for the franchisee, e.g. one might use drive-through to get a coffee while the other might go inside, stay a while and buy more than just a coffee. By allowing choice the franchisee helps the customer create unique values for themselves and in turn creates greater value for the franchisee. Similarly, an individual visiting a McDonald’s franchise may seek value that is uniquely different from another customer. One might be looking for a “value” meal, while the other may be there to spend quality time with their children. Hence, the customer must be recognized as a critical provider of operant resources (i.e. customer-specific knowledge) in the franchise’s value-creating process.

The paper’s proposed framework suggests that for a franchise firms must develop mechanisms which allow for conversion of tacit knowledge to explicit knowledge, sharing this explicit knowledge, and conversion of the explicit knowledge into tacit knowledge. Further, processes and systems must be created to enhance the absorptive capacity of various actors in the network. Fear of knowledge appropriation hazard should not hinder the knowledge-sharing process. Instead, franchisors should develop regimes of appropriability to protect against the negative effects of knowledge appropriation, and still allow for knowledge sharing within the network.

This has implications for franchise governance mechanism too. For example: Who controls the knowledge? How is this knowledge disseminated? Who uses the knowledge, and for what purpose? What are the incentives for doing so? What is the role of legal contracts in facilitating knowledge transfer, especially in an international environment? What role does culture within the network and cultural differences across different value chain members play in development, implementation and maintenance of such a knowledge-based value chain? How does one transform an organization to view knowledge as the operant resource and use it to create value for all stakeholders in the franchise value chain?

Perhaps it is time to look at franchise value creation in terms of the creation of “new experiences” of which new product and service development are just one component.

To read the full article enter 10.1108/JSM-09-2013-0254 into your search engine.

(A précis of the article “Value co-creation through knowledge exchange in franchising”. Supplied by Marketing Consultants for Emerald.)