A relational performance model for developing ...

Shockley & Turner, 2016

A relational performance model for developing innovation and long-term orientation in retail franchise organizations

Jeff Shockley College of Charleston 66 George Street, Beatty 415 Charleston, SC 29424 P (843) 953-7070 [email protected]

Tobin Turner Presbyterian College 503 S. Broad St., Jacobs 213 Clinton, SC 29635 P (864) 833-8415 [email protected]

Abstract: A relational performance model is developed to show how innovation and long-term orientation can be evaluated and monitored within franchised retail service organizations. Using principles of justice from social exchange theory as a guide, our performance model measures how franchisee entrepreneurial passion (EP) and perceptions of fairness help to promote innovation and long-term commitment across retail franchise organizations. We test our model using data collected from one large U.S. retail service organization ($5B+ annual revenue) and its independent franchise operators. We discover that targeting distributive justice (or fairness) helps to leverage the EP of the independent operators for promoting innovation, while both procedural and distributive elements of the organizational justice climate help to enhance franchisee’s long-term commitment. Moreover, we find that retail franchise operators may view organizational justice differently than do the corporate district managers, which may have longterm implications for the importance of measuring the impact of relational performance in retail franchise organizations. Keywords: Retail, Franchisor-Franchisee Relationships, Justice, Entrepreneurial Passion, Innovation, Long-Term Orientation

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This new organization structure will unleash more entrepreneurial spirit and more innovation across our system while bolstering what makes McDonald's a formidable leader in the industry: our incredible network of dedicated franchisees. —McDonald's Chief Administrative Officer Pete Bensen1 on May 2015 restructuring Giving away free coffee—what a brilliant, creative idea from the geniuses in Oak Brook [McDonald’s corporate headquarters]. Oak Brook management is out of ammo. —Anonymous McDonald’s Franchisee quoted in the Wall Street Journal2

1. Introduction Service franchise researchers (e.g., Altinay, 2004; Davies et al., 2011) and practitioners have begun to consider how to leverage the potential of franchisee relationships for promoting innovation and organizational change. McDonald’s Corporation explicitly stated in May 2015 that a cornerstone of its corporate strategy must be to provide the company with the ability to “unleash the entrepreneurial spirit” of franchisees in an effort to expand innovation and improve the company’s performance. As one of the largest service franchise organizations in the world, McDonald’s has over 35,000 locations worldwide with approximately 60% of these being operated as what McDonald's terms "conventional franchisees.” As McDonald's simultaneously announced the goal of having 90% of their global restaurant locations operating as franchised locations by the conclusion of 2018, understanding how to better leverage innovative resources trapped within their existing franchise network would seem to be a strategic imperative. Nevertheless, it is a challenge for these firms to know how to leverage the full entrepreneurial spirit that exists within a service franchise network, particularly when it comes to making changes to consumer services within such highly-structured organizational systems. Moreover, 1

http://mcdonalds.mwnewsroom.com/Corporate/news-stories/2013/McDonald-s-Announces-Initial-Steps-InTurnaround-P#.VVTFKu__JXk.email accessed 3/11/2016 2 http://online.wsj.com/news/articles/SB10001424052702304626304579508043282874718 accessed 3/11/2016

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research suggests that franchisees and corporate managers may have different expectations about the franchise relationship or ideal form of the franchise organization (Grace et al., 2013). Using insights from social exchange theory developed from entrepreneurship, marketing, and operations management literature, we develop a relational performance model that considers innovation and long-term franchise commitment as the two key elements for driving ongoing strategic renewal and competitiveness in widely-dispersed retail franchise organization. While franchise organizational networks formally codify operations to encourage network efficiency and operational consistency, these rigid structures could also hinder the development of innovation and long-term consumer-driven strategies if not properly managed. Consequently, franchisee perceived fairness is key to establishing trusting relationships with the corporate office (Shaikh, 2016), such that they should feel motivated to contribute their inherent entrepreneurial spirit to help drive and commit to ongoing innovative changes to enhance the service offering to retail consumers. While there is still significant debate as to the similarities and/or differences between individual franchisees and more traditional entrepreneurs (e.g., Ketchen et al., 2011; Combs et al., 2009), service franchisee operators are typically considered to be ‘entrepreneurs’ (Shane, 1996; Sorensen and Sorenson, 2001 p. 713; Akremi et al., 2011, p.930; Altinay, 2004; Ketchen et al., 2011).

For example, franchisee-entrepreneurs demonstrate higher levels of risk-taking,

opportunity identification, and innovativeness than do other types of mangers (Cardon et al., 2009; Baron, 2008), so they should be inherently inclined to support and promote new initiatives to enhance consumer services and improve product/service offerings. Yet, scholarship remains unclear about how companies can best take advantage of entrepreneurial passion (EP)—which Cardon et al. (2013) describe as an enduring and defining element of an entrepreneur’s

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fundamental self-identity.

Because of the inherent conflict between organizational control

(scripted processes, documented performance measures, established hierarchies) and promoting ongoing product and process innovation (freedom to explore, risk taking, brainstorming), many corporations struggle to understand how to best promote and monitor innovation in highlystructured operating systems (Goodale et al., 2011; Ireland et al., 2009; Kuratko et al., 2009). Developing relationship-based performance management models that are useful for measuring the entrepreneurial potential of franchisees to champion newly-proposed innovations has proven to be a difficult task. For example, the Wall Street Journal recently summarized the findings of a McDonald's franchisee survey stating that “the franchisees who responded said McDonald's needs to do more than give away products—the company, they say, needs to come up with innovations to juice the business.” One franchisee noted: “Oak Brook management is out of ammo."

Unleashing innovative efforts for consumers can be challenging because

franchise networks rely heavily upon existing processes and standard operating procedures. These structures often struggle to create a climate for generating future, presently-unknown innovations (Solis‐Rodriguez and Gonzalez‐Diaz, 2012).

Having a favorably-perceived

organizational justice climate (De Massis, 2012; Barnett et al., 2012) is critical for facilitating voluntary, non-contractually obligated efforts on the part of the franchisee to promote and embrace change. It is argued that the relational climate itself between franchisor and franchisee – not just the nature of the formal contract – would be critical for establishing any enduring competitive advantages (Liu et al., 2007; Davies et al., 2011). In this paper, we present and test a new relational model of enduring entrepreneurial competitiveness within a retail service franchise network. The model can be used to both develop and monitor the ongoing performance of new innovation efforts and the long-term

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orientation of franchisee operators. Firms may be able to ‘unleash’ the trapped entrepreneurial passion of intra-network entrepreneurs—in our case the service franchisees— by creating an organizational justice climate where individuals are willing to commit long-term to the partnership, and will exert the needed effort needed to promote innovative potential (Figure 1). This model extends insights from extant organizational justice theory and consumer science research (e.g., Adams, 1966; Barnett et al., 2012; Shaikh, 2016) to analyze enduring entrepreneurial competitiveness within a typical retail franchise network. Specifically, the two main objectives of this paper are: 1. To determine if the perceived organizational justice and franchisee entrepreneurial passion help drive the two desired performance outcomes for developing enduring competitiveness in a retail franchise network: innovation and long-term orientation; and 2. To examine if franchisee operator perceptions of the organizational justice climate can help to unleash the retail franchisees’ entrepreneurial passion for promoting a stronger long-term and innovative orientation to the franchise relationship.

-----------------------------------------Insert Figure 1 about here ------------------------------------------

This research contributes to current retailing and consumer services literature in three important ways. First, our relational performance model will examine the franchise organization from the perspective of the franchisee to better understand what organizational justice climate is required for effectively promoting innovation.

Innovative decision-making in retail service

networks, for example, is often thought to be unilateral: top-down from corporate headquarters to operator (Roth and Shockley, 2010), but understanding how to leverage and monitor specific relational outcomes for the desired service strategy is critical for monitoring the effectiveness of

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these networks (Shockley et al., 2011). Second, while most survey research on retail franchising focuses only a single respondent perspective for empirical analysis (e.g., Combs et al., 2004), we believe it is important to examine the differing perceptions of the organizational justice climate between the franchise store operators and the corporate division managers, since franchisees may have different normative expectations of the relationship than do division managers (Grace et al., 2013). Finally, while recent retail franchise marketing literature has examined the fairness-trust relationship (e.g., Shaikh, 2016), to our knowledge there are no relational models connecting franchisee entrepreneurial passion, and perceived justice to enduring entrepreneurial performance outcomes – innovation and long-term orientation.

2.0 Theory and hypotheses 2.1 Entrepreneurial Passion—a trapped resource in retail franchise arrangements To promote and sustain new innovations, managers need to utilize all resources available within their extended organization, including the ability and energy of intra-organizational entrepreneurs to promote these innovations to consumers. Franchisees are already willing to take on new risk—a key element to an entrepreneurial orientation (Lumpkin and Dess, 1996; Altinay, 2004). Unlike traditional corporate managers, whose wages are tied indirectly to performance, franchisees have tightly-linked pay for performance incentives (Sorenson and Sorenson, 2001; Watson et al. 2005). Yet, leveraging the entrepreneurial abilities of franchisees has been problematic, as firms struggle to develop enduring systems that balance long-term control and performance needs with those that encourage franchisee innovation acceptance and long-term orientation (Roth and Shockley, 2010; Kuratko et al., 2009; Ireland et al., 2009; Kuratko et al., 2014). 6

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Entrepreneurship research has sought to better define and measure an individual’s proclivity towards embracing entrepreneurial activities by using the concept of entrepreneurial passion (EP), defined as ‘an entrepreneur’s intense affective state accompanied by cognitive and behavioral manifestations of high personal value (Chen et al., 2009, p. 199).’ Cardon et al. (2009) have further developed the EP construct and Cardon et al. (2013) empirically support EP as ‘at the heart of entrepreneurship, because it can foster creativity in the recognition of new information patterns critical to the discovery and exploitation of promising opportunities (p. 373).’ Entrepreneurial passion is a lasting and enduring mindset that manifests itself through inventing, founding and developing entrepreneurial opportunities where passionate entrepreneurs demonstrate unconventional risk-taking, uncommon intensity of focus, and unwavering belief in a dream (Cardon et al., 2009; 2013).

The study of how an individual's emotions, traits, and

personality influence one’s affinity for innovation and entrepreneurship has long been an area of focus in extant entrepreneurship and franchise marketing literature (e.g., Gartner, 1990; Clarkin and Swavely, 2006), and remains an important topic (Cardon et al., 2013; Baron et al., 2012). Cardon et al. (2009) encapsulate this essence in the EP construct which they describe ‘as consciously accessible, intense positive feelings experienced by engagement in entrepreneurial activities associated with roles that are meaningful and salient to the self-identity of the entrepreneur (p. 517).’

2.2 Enduring entrepreneurial competitiveness – innovation and long-term orientation Because of franchising's large impact on the service economies of more developed nations, it is not surprising that scholars have long-studied franchising (e.g., Oxenfelt and Kelley, 1968). While significant research has considered why companies franchise (e.g., Braddach and

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Eccles, 1989; Carney and Gedaljlovic, 1991; Bradach, 1997; Combs and Ketchens, 2003; Castrogiovanni et al., 2006; Perryman and Combs, 2012), the benefits of franchising (e.g., Darr et al., 1995; Combs and Ketchens, 1999; Sorenson and Sorenson, 2011), and the risks of franchising (e.g., Fladmoe-Lindquist and Jacque, 1995; Barthélemy, 2008, Combs et al., 2009), scholars have only recently investigated how franchisor-franchisee relationships should be managed and monitored for specific performance outcomes in particular operating situations (e.g., Altinay, 2004; Davies et al., 2011; Mumdžiev, and Windsperger, 2011), such as understanding how franchisors and franchisees can work together to develop new innovations and long-term relational capital (Watson et al. 2005). It is important for the viability of the franchise that relationships develop to maintain and sustain ongoing competitiveness across intra-organizational boundaries, even if franchise relationships are often tense (Akremi et al., 2011).

For example, Hult et al. (2002; 2004, p.

241) argue that network partnerships are strengthened by long-term relationships based on stability as well as flexibility. Strategic partners should work together to build inimitable resource capabilities that bind the members of the organization together in ways that influence organization-wide structure, culture, and strategy (Hult et al., 2007). However, most competitive franchise cultures need to reformulate over time, despite any short-term problems. When relationships are strained, businesses may be prevented from fully extracting the value of the innovation from resources already present within the franchise network (Barthelemy, 2008). Moreover, a number of studies suggest that franchise relationships can deteriorate over time (Phan et al., 1996; Spinelli and Birley, 1996; Spinelli and Birley, 1998), as enforcement of formal contractual controls tend to decrease the overall dyadic trust between the partners (Inkpen and Curral, 2004).

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Two relational performance outcomes in particular warrant our consideration highly as relevant for building an enduring entrepreneurial competitiveness in a retail franchise network: innovation and long-term orientation. Innovation (Innov) refers to the capability/ability of the organization to introduce new products, new services, new offerings and new features (Kuratko et al., 2009; Koufteros et al,. 2001).

Entrepreneurial actions and initiatives that transform an

organization (Goodale et al., 2011) serve as a pillar of sustainable competitive advantage and potential profitable growth (Hornsby et al. 2009; Kuratko et al. 2001). On the other hand, long-term orientation (LTO) has been linked to social exchange situations in network relationships where a priori and codified performance measures cannot be made explicit (Griffith et al., 2006; Heide and Minor, 1992; Gentry, et al., 2014; Lumpkin and Brigham, 2011). Researchers suggest that the effective aligning of network incentives helps to prevent exchange partners from partaking in opportunistic, self-serving behavior (Szulanski and Jensen, 2006), but may be less beneficial when innovation is an organizational goal (Kuratko et al., 2014).

While replicable and explicit agreement terms like those in retail franchise

arrangements may allow firms to survive without chaos, franchise organizations can only survive by relying on relational capital that only develops over time (Watson et al. 2015). A long-term orientation has also been shown to affect parties’ willingness to accept shortterm inequities with the belief that over a longer time-frame the relationship will operate more efficiently and fairly (Ganesan, 1994). LTO is closely tied with decreased conflict between exchange partners, increased relational behavior, and increased overall satisfaction with the outcomes of the relationship itself (Griffith et al., 2006) and, thus, the underlying commitment of the franchisee operator. Inherent in this conceptualization is that LTO is a byproduct of numerous individual exchanges between entities, each of which individually may be sub-optimal

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for either party. However, high levels of LTO suggest that over time this conflict will be reduced and resolved. Moreover, the continuity of the relationship provides overall long-run satisfaction, commitment, and value despite any individual short-term inequities that may result from a new consumer initiative. Businesses may be prevented from fully extracting the value of the innovation from resources already present within the franchise network when franchise relationships become strained (Barthelemy, 2008), but a long-term commitment to the franchise relationship serves as a foundation to continue building stronger relational bonds. When partners exhibit LTO they are able to focus on knowledge development coupled with increased investment in relationshipspecific assets with confidence. Paulraj et al. (2008) suggest that long-term orientation enables the future exchange of information and knowledge development, lowers overall relational transaction costs, and enhances strategic collaboration in extended supply chain networks. As franchisees tend to be entrepreneurs, and those with entrepreneurial passion tend to have an inherent and enduring proclivity towards accepting the potential of new innovation and a long-term orientation in developing the franchise business, we formally state the hypotheses: Hypothesis 1: EP will be positively associated with innovation (H1a) and long-term orientation (H1b) for retail franchise operators.

2.3 Importance of the perceived justice climate in retail franchising Over the last decade, research examining the role of perceived justice – or fairness (Luo, 2007; Shaikh, 2016) – as a facilitator of knowledge-exchange and reciprocal treatment between business partners has grown both in volume and in theoretical richness. Yet, other research (Barnett and Kellermanns, 2006; Barnet et al., 2012; Griffith et al., 2006; Ireland and Webb, 2007) identifies the need for further investigation of justice as a facilitating mechanism for 10

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establishing enduring systems that promote innovation and relational bonds between business partners. Understanding the role that the organizational justice climate plays in developing network or service partners in uncontrolled areas – i.e. areas outside of formal, explicit contracts – has become an important area of further investigation (Shaikh, 2016; Narasimhan et al., 2013; Carsrud, 2006). While justice has been considered in numerous ways (Colquitt et al., 2001; Colquitt et al., 2009), scholars typically conceptualize it as distinctly independent dimensions – for example, distributive justice, procedural justice, interpersonal justice, informational justice, and anticipatory justice – where each individual dimension has specific relational and structural context to a specific arrangement between two people or partnering firms.

Each of the

dimensions, then, will play a separate role within a network relationship, and each may lead to distinct social or structural benefits (Colquitt et al., 2009). In our performance management model, we consider two of the most well-established dimensions of justice used in extant marketing research to broadly define the perceived organizational justice climate in franchise networks: distributive justice (DJ) and procedural justice (PJ).

We selected these two

dimensions for two reasons. First, these two dimensions are the oldest and most well-established of the dimensions (Adams, 1966; Shaikh, 2016), and both dimensions have been shown to facilitate exchange at the organizational level by previous scholars in other fields (e.g., Barnett et al., 2012; Narasimhan et al., 2013). Distributive justice refers to the perceived equity in outcomes (Adams, 1966), when an individual perceives that the rewards she receives from her effort is fair and equitable. Adams (1966) suggests that two mental calculations take place when a person seeks to determine the degree of distributive justice: first, are a person’s rewards proportional to the person’s efforts?;

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and, secondly, is this ratio of rewards to effort proportional and fair relative to the ratio of rewards to effort received by others in the relationship? Inherent to this conceptualization of distributive justice is the idea of fairness between effort and reward, and fairness in what one receives compared to what other parties receive (Shaikh, 2016).

Distributive justice,

consequently, may reduce each partner’s perception that the other partner in the relationship can or will behave opportunistically. Equity in outcomes, dependent upon the level of effort put in by each partner, undergirds the concept of distributive justice. The procedural element of an organizational justice climate, procedural justice, refers to how an individual perceives the process of determining inputs and outputs (Luo, 2007; Narasimhan et al., 2013) within the greater organizational system. While distributive justice refers to the ratio of reward to effort, procedural justice concerns itself with the ability of a franchise partner to have input and control over how this ratio is established. In the context of a partnership, this notion of procedural justice indicates how much each party in the relationship perceives that they have a voice (or a role) in addressing current or future disagreements or perceived inequities in the relationship. Procedural justice, therefore, suggests that each participant in the relationship has a role in shaping future outcomes and in addressing current and potential disagreements. 2.4 Link between justice dimensions and enduring entrepreneurial outcomes Previously, researchers have recommended that managers develop clear and impartial procedures that maximize the desired relational performance benefits. Liu et al. (2012) suggest that business partners should ‘establish a transparent and standard system of processes to be followed and clearly communicate their policies with the partner (p. 365).’

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recommendation seems particularly relevant for understanding service franchise relationships, where the franchise network is governed by strict covenants and contracts. However, all contracts are to some extent incomplete due to the bounded rationality of the contracting parties which makes it impossible to proactively address any and all contingencies that might affect the contract (Williamson, 1985), an inability to verify all relevant variables that should be included in the contract (Williamson, 1985), and extensive contractwriting costs (Solis‐Rodriguez and Gonzalez‐Diaz, 2012). Moreover, codified contracts and explicit processes cannot always be generated to address any future, presently-unknown innovations. In such cases, mutual perceptions that innovation benefits will be shared fairly and justly (e.g. ‘What’s in it for me?’) by both sides of the dyadic relationship are needed to ensure that both parties put forth the mutual effort needed to develop and implement the innovation (Luo, 2007). Distributive justice is characterized by a dyadic exchange relationship where actual gains (rewards) are proportional to each party's perceived investments in the relationship (Adams, 1966). In operations and supply chain literature, perceptions of distributive justice indicate that each party in the buyer-supplier relationship feels confident, and will accept additional investments of time, energy, and resources needed to achieve it (Narasimhan et al., 2013). Alternatively, when network partners believe they are not receiving an adequate return for their resource investments, the expectation is that they will resist any new innovative efforts, and will fail to see any long-term benefits. We formally state this hypothesis as: Hypothesis 2: Distributive justice (DJ) will be positively associated with innovation (H2a) and long-term orientation (H2b) for retail franchise operators. A positive perception of procedural justice helps to establish a nurturing and stable current environment which facilitates partners developing relationship specific assets which may 13

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take the form of newly improved organizational operations, routines, and service offerings (Griffith et al., 2006). In this vein, Liu et al. (2012) recommend that business partners should ‘establish a transparent and standard system of processes to be followed and clearly communicate their policies with the partner (p. 365)’.

This recommendation would seem

particularly relevant for understanding how innovations develop in retail franchise systems, who, like supply chain networks, operate somewhere between a contract market and an organizational hierarchy (Watson et al. 2005).

Accordingly, firms tend to be very effective at aligning

contractual incentives that help prevent exchange partners from partaking in opportunistic, selfserving behavior related to new consumer offerings.

However, these explicit contracts are

readily applicable to a steady-state perspective of the organization (Szulanski and Jensen, 2006), the formalized agreements often lead to difficulties in capitalizing on the long-term opportunities that are necessary for the strategic and organizational renewal (Winter and Szulanski, 2001). As such, explicit contractual standards may be at direct odds to unleashing the entrepreneurial spirit of franchisees because short-term opportunism minimization may be in direct conflict with a longer-term orientation. In such cases, mutual perceptions that the benefits of any innovation will be shared fairly and justly by both sides of the relationship are needed to ensure that both parties put forth the effort needed to develop ongoing innovation (Luo, 2007). Consequently, procedural fairness would tend to promote ongoing innovative outcomes and help facilitate a longer-term view of the relationship. Each partner is willing to overlook any small short-term inequities when they believe that the long-term will be procedurally fair and equitable. Moreover, we would anticipate that procedural justice promotes a more favorable climate where current satisfactory cooperative outcomes related to new innovation would facilitate the expectation of future cooperative outcomes. We formally state these hypotheses as:

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Hypothesis 3: Procedural justice (PJ) will be positively associated with innovation (H3a) and long-term orientation (H3b) for retail franchise operators. 2.5 Justice climate and franchisee entrepreneurial passion Calls are growing for scholars to better understand how corporations codify and systematize the collection of their individual employees and business units to foster innovation and entrepreneurial achievements (e.g., Goodale et al., 2011; Kuratko et al., 2014a; Kuratko et al., 2014b). Moreover, scholars have considered to what extent franchisees should replicate best knowledge versus innovate towards local market conditions (Szulanski and Jensen, 2008); how standard versus innovative replicated business models should be (Winter and Szulanski, 2001); the speed with which franchises should adapt new innovations to local markets – conservatively (slowly) versus a quick modification approach (Szulanski and Jensen, 2006); and the extent to which franchisees share best practice amongst and between independent franchisees of the same organization (Darr at al., 1995). While procedural justice (PJ) deals with individuals’ perceptions about the fairness of existing procedures governing decisions and reward allocations, distributive justice (DJ) is uniquely dependent upon the formal structural attributes of an existing franchise system – elements such as monetary reward-sharing, gain distribution, etc. – and reflects to what extent each parties’ realized gains are in accordance with one’s own resource contribution. Accordingly, while we expect DJ to have positive direct associations with LTO and innovation performance, we also expect that DJ will have a strong moderating relationship on the link between the EP of the operator and both of the desired performance outcomes of LTO and innovation. Because DJ deals much more with the tangible and current system of reward allocation, we would expect a stronger moderating relationship between EP and innovation than between EP and LTO. LTO, by definition is a longer-term conceptualization of commitment to 15

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the relationship and investment, where DJ inherently deals with the current system. Consequently, we formally propose these relationships as: Hypothesis 4: DJ moderates both the positive association between EP and innovation (H4a) and the positive association between EP and LTO (H4b) for retail franchise operators. The complexities of maintaining a dispersed franchise network suggests that procedural justice (PJ) may influence performance outcomes in an indirect manner. Because procedural fairness by its definition is neither a codified nor a formal decision-making mechanism, but rather an ingrained and inextricable part of the franchise relationship, it should strengthen the relationship between franchisee EP and LTO. Conceptually, PJ should be a facilitator and enabler of efforts being made today with the trust and expectation that future rewards and processes will be adjusted so that performance outcomes are shared equitably (Luo, 2007). When a firm or individual in a relationship believes that policies and procedures will be fair and equitable, evidence shows that it reinforces a positive attitude towards long-term decisionmaking with a business partner (Griffith et al., 2006). In the franchise context, this attitude is because of a belief in the appropriate application of entrepreneurial efforts and resource intensive inputs put forth by each partner. Consequently, parties are more likely to carefully assess the procedures about future decisions when the outcomes cannot be benchmarked against current goals, measured or established against existing reward-sharing systems. For these reasons, we would expect procedural justice (PJ) to positively moderate the relationship between EP and LTO as well as the relationship between EP and innovation. However, because procedural justice denotes a longer-term expectation that future, presently unknown rewards and processes will be developed equitably, we expect a stronger moderating

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relationship of PJ between EP and LTO than EP and innovation. We formally state these hypotheses as: Hypothesis 5: PJ moderates both the positive association between EP and innovation (H5a) and between EP and LTO (H5b) for retail franchise operators.

Operations management research is beginning to study the role of the organizational justice climate across integrated buyer-supplier networks. Most of this past justice research has indicated that the different dimensions of the organizational justice climate may be mutually supporting (both justice dimensions-PJ and DJ-when pursued simultaneously have a greater influence on expected performance outcomes than when either is pursued individually), requiring the use of interaction (or multiplicative) models to evaluate the effect of these dimensions of overall performance competitiveness (e.g., Lind et al., 1993; Goldman, 2003; Luo, 2007; Narasimhan et al., 2013). In particular, Narasimhan et al. (2013) find a strong moderating relationship between both the procedural and distributive forms of organizational justice and long-term orientation in supply chain networks. Since retail franchise organizations also require integration and relationship development (Shaikh, 2016), as well-as offer a similar network dynamic as supply chain organizations, we suggest that both of these dimensions of the organizational justice climate may also have positive interactions with each other and the dependent variables in our model (Innov and LTO). Hypothesis 6: PJ moderates both the positive association between DJ and innovation (H6a) and between DJ and LTO (H6b) for retail franchise operators.

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3.0 Research methodology 3.1 Sampling frame and survey development Our initial hypotheses were tested using survey data collected from 21 corporate employees (regional district managers) and 200 independent retail franchise operators. We were able to partner with one large U.S. convenience store chain ($5B+ in annual revenue) that desired to use its franchise network (300+ stores) to promote and develop corporate-level innovation for the balance of its company-operated stores (500+ stores).

The corporation

provided us the names and contact information for each of its corporate employees who had direct oversight responsibilities for franchisees, as well as the independent contact information for each of its independent franchise operators. We initially designed one questionnaire for each type of respondent - corporate employees and a separate questionnaire for the franchisee-operators. The two versions were intended to capture a dyadic perspective of the relationship between the corporation and the independent franchisee operator. However, during the pretesting of the survey questionnaires with upper management of our partner firm, we were able to rework the two separate questionnaires so that both the corporate employee and the franchisee were able to use identical questions to represent the constructs of interest. This proved to be a preferable structure for several reasons: first, comparing the responses to individual questions became less problematic when the wording of the question was identical. Secondly, because most of these franchisees (approximately 85%) operate only a single store while the average regional manager oversees twelve franchisees, there were potential problems with the wording of our measures. Therefore, we structured our questionnaire so the unit of analysis is the relationship between the franchisees and the franchisor – independent of how many locations the respondent oversees.

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corporate employees managing multiple stores considered the overall relationship as opposed to a specific relationship between one regional manager and one particular franchisee.

Thirdly,

corporate executives preferred having a single questionnaire to review and approve as opposed to having separate questionnaires for both corporate employees and franchisees. The corporation’s leadership was concerned that separate questionnaires might be perceived to be nuanced or biased in unintended ways. In addition, to confirm that all items were suitable for our respondent population, items were examined by a panel of seven practitioners with extensive experience in the industry via a Q-sorting process consistent with the process outlined by Moore and Benbasat (1991) where all items had hit-ratios in excess of 75% (“hits” consisted of respondents being able to correctly identify measurement items with their corresponding construct definition). We administered surveys via an online website tool using the email addresses provided by the corporation for both the employees and the franchisees. During pre-survey phone calls with the executive director and regional managers, all parties were assured of the confidentiality of the responses, although the researchers maintained visibility of responses by operators and by district managers via the emailed survey links. Due to strongly encouraged corporate support to both employees and franchisees, response rates were very high. 24 corporate managers were sent invitation emails with links to the survey and we received 21 responses (87.5% response rate). 294 independent franchise operators were sent emails with invitations to take the survey, and we received 200 complete responses (68.0% response rate). All data was collected within a company-required 14-day window. After one week a reminder email was sent to all respondents who had not submitted a survey, and a second reminder was sent after 10 days to all respondents who had not submitted a survey.

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After the data collection, we assessed nonresponse bias by comparing early responders (those who responded in the first week) with those who responded late (those who responded after the second reminder email). We found no significant difference (p>.10) between the early responding and the late responding individuals across all variables used in the analysis models, suggesting that nonresponse bias should not be a primary concern in our data (Armstrong and Overton, 1977). Respondents represented a wide range of regions, store sizes (as determined by the weekly unadjusted sales targets), and years of experience in the industry.

Complete

descriptive data for the respondent sample is summarized in Table 1. -----------------------------------------Insert Table 1 about here ------------------------------------------

3.2 Measurement validation While we adapted our multi-item scale content from prior studies, we established their face validity through our field studies, interviews, and pilot field tests with senior management who were not part of our sample frame. All scale items were assessed on a seven-point, Likerttype scale ranging from ‘strongly agree’ to ‘strongly disagree’ (where 7= strongly agree). Table 2 displays each the constructs used in this study, the formal definition of each construct, the measurement items used for each construct, and the foundational papers from which content for each of the survey measures was taken. -----------------------------------------Insert Table 2 about here ------------------------------------------

In order to confirm the measurement validity of the multi-item variables in this context, we conducted confirmatory factor analysis (CFA) using STATA v12 structural equation modeling (SEM) on the franchise operator data (n=200). Measurement model fit was assessed

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using the following fit statistics: chi-squared statistic (), comparative fit index (CFI), TuckerLewis index (TLI), root mean squared approximation (RMSEA), and standardized root mean squared residual (SRMR). The confirmatory factor analysis yielded CFI=0.96, TLI=0.95, RMSEA=0.07, and SRMR=0.04.

The measures of the latent variable showed

reasonable model fit, and were at or near generally accepted cutoffs for evaluating measurement model fit (Hu and Bentler, 1999) and similar to the results of past studies using similar justice constructs (e.g., Narasimhan et al., 2013; Shaikh, 2016). Next, we established the reliability, convergent and discriminant validity for each of the scales using the methodology proposed by Fornell and Larker (1981). The composite reliability (of each multi-item scale exceeded 0.87, confirming scale reliability. Convergent validity was assessed by confirming that the standardized factor loadings of all our measurement items were greater than 0.7 and statistically significant (p