Note to instructors: Dutch druggists in distress: franchisees facing the complex decision of how to react to their franchisor's strategic plans.
Franchising has become an increasingly important business strategy for small business owners in many industries in most parts of the world. This case clearly demonstrates that franchisees are intelligent players who have their own personalities, strategic objectives, and ideas, who make their own business decisions and who may adopt various reactions toward the franchisor. This is in contrast with what the franchising literature generally assumes--that franchise relationships are simple and static relationships in which the franchisor is the only strategic actor (Clarkin & Rosa, 2005). Similarly, Ucbasaran, Westhead, and Wright (2001) argued that very little is known about the entrepreneurial attributes of franchisees and the entrepreneurial actions they undertake.
The complexities of a franchise chain such as DA will manifest themselves fully when the chain is put under pressure. In this specific case, competitive developments and internal inefficiency have indeed placed pressure on the franchisor, leading to the decision to introduce major strategic changes to the franchise chain. Strategic change and systemwide adaptation are relevant but severely under-researched topics in the franchising literature (cf., Bradach 1997, 1998; Lusch, O'Brien, & Sindhav, 2003; Parsa, 1999). What we observe in practice is that such major changes typically go together with increasing control by the franchisor, posing a direct threat to the entrepreneurial identity of the franchisee and possibly leading to negative reactions on the part of franchisees toward the franchisor.
This case focuses on a well-reputed 60-year-old franchise chain in the Netherlands, which started as a true cooperative but has developed toward a more commercial structure. It is important to note a number of peculiarities of this context in comparison with franchising as we read about in mainstream U.S. literature. First, many Dutch franchise chains are still "decentralized franchise chains" in which franchisees have considerable room for local adaptation. In line with the Dutch tradition of focusing on stakeholder interests, sustainability, and coordination (characteristics of the "Rhineland model"), decentralized franchise chains are fundamentally different from the more centralized formats that are prevalent in the U.S. (and other countries following the Anglo-Saxon model). In addition, the typical Dutch franchisee owns only one, two, or perhaps three franchised units. In recent years, however, there has been a clear trend in the Netherlands toward more centralized franchise chains with more multi-unit franchisees. This may be due to growing competition and the entry of foreign franchise chains, but the managerial tendency toward increasing efficiency and control most certainly contributes to this development.
Key Issues and Discussion Points
This teaching case has two main objectives. The first main objective is to provide students with an opportunity to obtain a better understanding of the complexities of being an entrepreneur who must deal with the opportunities and restrictions of being part of a franchise chain. The specific setting of the case is that of a growth-oriented, multi-unit franchised family business that is facing the succession issue and an increasingly changing environment. As a result, the case also provides students with the opportunity to understand family firm aspects. The case also discusses the considerations of some of Marc's colleagues whose individual situation may differ significantly from Marc's. The second main objective is to help students understand the issues that confront the "opposite party" (i.e., the franchisor), thereby providing a broad understanding of the origin and consequences of the shared and conflicting interests that exist within franchise chains.
By including both the franchisor's and franchisees' perspectives, we aim to give students a more balanced view of franchise relationships. As far as we know, Entrepreneurship Theory and Practice has published one case discussing an individual franchisee's perspective (i.e., Castrogiovanni, 1998), and one case that presents considerations from a franchisor's perspective in another setting (i.e., Ciavarella & Amason, 2001).
Potential Audience and Uses
This case is suitable for undergraduate, graduate, and postgraduate entrepreneurship courses dealing with franchising (especially the franchise relationship, franchisor, and franchisee strategies and strategic change) and fields such as small business management, retail management, marketing management, family businesses, and change management. Some basic knowledge of franchising is required to understand the case fully. Most business students will already have this knowledge, but entrepreneurship students from other disciplines will benefit from a short introduction of the topic by the teacher or by reading a supplementary text (for suggestions, see "Outside or Supplementary Readings").
Suggested Teaching Approach
The case was tested among two groups of undergraduate entrepreneurship students and a group of faculty members from the Faculty of Economics and Business at the University of Groningen, The Netherlands. Composed of non-native English speakers, these audiences required between 50 minutes and 1 hour to read the case. Depending on the time available, we would recommend letting the students read the case in advance.
Teaching the case may be particularly effective if one of the following approaches is used: prepare a range of specific questions and discuss them in class or use role play to re-enact the interaction within the Van der Bilt family, and between the Van der Bilt family and the franchisor.
In the Teaching Note belonging to this case, we provide answers to the discussion questions and we present more elaborate information regarding the role plays.
Understanding the franchisor's perspective:
1. What is the major trade-off that the DA management faces in reaching its strategic objectives?
2. How would you evaluate DA's strategic plans and management's approach to implementing them?
Understanding the franchisee's perspective:
3. How would you describe the Van der Bilt family members' main goals and considerations, and do you see any major differences among them? How would the fact that the Van der Bilts run a family business influence their decision-making process and their ultimate decisions?
4. Given the aforementioned considerations, how attractive would staying at DA and signing the new three-year franchise contract be? What other options next to staying at DA could be attractive for the Van der Bilts? Compare their attractiveness systematically.
5. What would be the most attractive long-term position for the Van der Bilt family business? Should it be within or outside the DA chain? What actions should the family undertake to reach that position?
6. What additional information do the Van der Bilts need in order to make a well-considered decision? How could they obtain this information?
7. Considering your answers to the aforementioned questions, how should the Van der Bilt family vote on the general meeting, and should they sign the new contract?
Understanding the case on a more abstract level:
8. What are the main factors preventing the DA chain from flourishing and exploiting their superior customer evaluations?
9. What are possible remedies for these problems? Develop possible solutions in which you address both the decisions that the DA management should make and the way in which it should implement these decisions.
Role playing could be a fruitful approach for teaching this case as it will bring up both common and conflicting interests of various individuals and parties, which is a main theme of this case. There are two options
for role playing.
The first possibility is to enact the planned family meeting on Sunday, during which the Van der Bilts should at least decide what to vote during DA's general meeting. They should ideally make decisions about whether or not to sign the new DA contract and concrete actions that could be pursued as well. Considering the background, personalities, and personal goals and considerations of the individual family members, conflicting opinions will emerge, especially with regard to the strategic development of the family business and the expected behavior of DA.
The second possibility for role playing is a confrontation between the Van der Bilts and a representative of DA (given their shared history, CEO Frank Jensen would be a logical choice). It would be plausible for the Van der Bilts to arrange such a meeting during which the focus would be on the conflicting interests of the family and DA.
Outside or Supplementary Readings
Additional information can be found in the doctoral dissertation on which this case was partly based: Croonen, E.P.M. (2006), Strategic Interactions in Franchise Relationships, Doctoral dissertation, Faculty of Economics and Business, University of Groningen, The Netherlands. A suitable text to introduce students to the basics of franchising would be: Price, S. (1997), The franchise paradox; New directions, different strategies, London: Cassell. The following articles could be very helpful for deepening the theoretical understanding of the perspectives of both franchisors and franchisees: Dant, R.P. and Gundlach, G.T. (1998). The challenge of autonomy and dependence in franchised channels of distribution. Journal of Business Venturing, 14, 35-67 (franchisee perspective), and Kaufmann, P.J., and Eroglu, S. (1998). Standardization and adaptation in business format franchising. Journal of Business Venturing, 14(1), 69-85 (franchisor perspective).
Role of the Author(s)
The DA case was used in the doctoral dissertation of Evelien Croonen, who is currently an assistant professor in the Faculty of Economics and Business at the University of Groningen, The Netherlands. This dissertation focuses on strategic changes in franchise chains, and the DA chain was one of four franchise chains in the Dutch drugstore industry that was studied (DA, STIR ETOS, and Uw Eigen Drogist). For each franchise chain, two "strategic change trajectories" were studied, in which the franchisor aimed to make strategic changes to the franchise chain (e.g., changes in the positioning of the franchise chain in the market and/or in the number of obligations for franchisees). The study addressed how franchisees reacted to the introduction of these changes by the franchisor, how the franchisor reacted in turn, and why both partners reacted in these ways.
Maryse Brand is an associate professor in the Faculty of Economics and Business at the University of Groningen and was one of the supervisors of Evelien Croonen's dissertation project.
Please send correspondence to: Evelien R M. Croonen, tel: (31) 50-3637236; e-mail: email@example.com.
References for the Note to Instructors
Bradach, J.L. (1997). Using the plural form in the management of restaurant chains. Administrative Science Quarterly, 24, 276-303.
Bradach, J.L. (1998). Franchise organizations. Boston, MA: Harvard Business School Press.
Castrogiovanni, G.J. (1998). Universal business brokers. Entrepreneurship Theory and Practice, 22(3), 75-86.
Ciavarella, M.A. & Amason, A.C. (2001). Nawkaw Inc.: Changing the colour of masonry. Entrepreneurship Theory and Practice, 26(2), 77-93.
Clarkin, J.E. & Rosa, P.J. (2005). Entrepreneurial teams within franchise firms. International Small Business Journal, 23(3), 303-334.
Lusch, R.F., O'Brien, M., & Sindhav, B. (2003). The critical role of trust in obtaining retailer support for a supplier's strategic organizational change. Journal of Retailing, 79, 249-258.
Parsa, H.G. (1999). Interaction of strategy implementation and power perceptions in franchise systems: An empirical investigation. Journal of Business Research, 45, 173-185.
Ucbasaran, D., Westhead, P., & Wright, M. (2001). The focus of entrepreneurial research: Contextual and process issues. Entrepreneurship Theory and Practice, 25(4), 57-80.
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|Author:||Croonen, Evelien P.M.; Brand, Maryse J.|
|Publication:||Entrepreneurship: Theory and Practice|
|Date:||Sep 1, 2010|
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