Sage Journals: Discover world-class research

Abstract

The objective of this paper is to compare, along three strategic dimensions, franchising with other types of operating arrangements in the lodging industry. The operating arrangements studied are, in addition to franchising, chain-managed and independent hotels. The three strategic dimensions include: (1) the variability or volatility of the task environment facing a hotel; (2) the business strategy chosen by a hotel's general manager; and (3) the level of sales revenue and profit margin achieved by a hotel.

The strategic management literature argues that an organization can only achieve superior performance when the characteristics of its task environment, its business strategy, and its decision structure (i.e., operating method or extent of vertical integration) are coaligned. Thus, comparing franchising with the two other operating arrangements along these dimensions seems to be a first step in determining franchising's role in successful strategic coalignments. Hypotheses linking the different operating arrangements with task environment variability, business strategy, and performance were developed. A mail survey of hotel unit general managers, designed to test those hypotheses, was then described.

Chain-managed hotels were found to be more prevalent in stable and moderately stable environments than they were in volatile ones. A similar result was found for the independent units. Franchised units, however, were more prevalent in moderate and volatile environments.

Both chain-managed and franchised hotels predominantly followed the prospector business strategy while the independents were more closely associated with the defender strategy. A plausible reason for this is the importance chain managers and franchisors place on developing new markets and new products to achieve economies of scale. Evidently, in the lodging industry, the prospector strategy is best suited for achieving this.

Finally, no significant differences in the room revenue and profitability performance dimensions were found across the three hotel operating arrangements.

In terms of franchising in the hotel industry, the results indicated that franchised units: (1) were more prevalent in volatile and moderately volatile task environments, (2) more frequently pursued a prospector business strategy, and (3) did not earn average room revenue or net profits significantly different from either independent or chain units.

Keywords

Franchising hotel industry chain management business strategy

Get full access to this article

View all access options for this article.

References

Achrol

R. S.

Torger

Stern

L. W.

(1983, Fall). The environment of marketing channel dyads: A framework for comparative analysis. Journal of Marketing, 47, 55–67.

Ashley

R. A.

Olsen

M. D.

(1986). Economic multipliers in the lodging industry (Research Report Number 3). Blacksburg, VA: Virginia Polytechnic Institute and State University, Center for Hospitality Research and Service.

Coleman

Gaetan

(1985). Perceived environmental uncertainty, investment strategy, and reasons for business failure in the apparel industry. Proceedings of the Conference on Apparel Manufacturing. Clemson, SC: Clemson University.

Day

G. S.

Klein

(1987). Cooperative behavior in vertical markets: The influence of transaction costs and competitive strategies. In Houston

M. J.

(Ed.), Review of Marketing 1987, (pp. 39–66). Chicago: American Marketing Association.

Dev

(1988). Environmental uncertainty, business strategy, and financial performance: A study of the lodging industry. Unpublished Doctoral Dissertation, Virginia Polytechnic Institute and State University, Blacksburg, VA.

Duncan

R. B.

(1972). Characteristics of organizational environment and perceived environmental uncertainty. Administrative Science Quarterly, 17, 313–27.

Dwyer

F. R.

(1988, April). A transaction cost perspective on vertical contractual structure and interchannel competitive strategies. Journal of Marketing, 52, 21–34.

Dwyer

F. R.

Welsh

M. A.

(1985, November). Environmental relationships of the internal political economy of marketing channels. Journal of Marketing Research, 22, 397–414.

Etgar

(1977). Channel environment and channel leadership. Journal of Marketing Research, 14 (February), 69–76.

10.

Evans

Dev

(1987). Pre-opening investment study of hotels and motels (Research Report Number 1). Blacksburg, VA: Virginia Polytechnic Institute and State University, Center for Hospitality Research and Service.

11.

Ginn

G. O.

McDaniel

R. R.

Jr. (1987). Strategic Adaptation in the Hospitality Industry. Proceedings of Annual Meeting of the Academy of Management. New Orleans, LA.

12.

Guiltinan

J. P.

(1974, Summer). Planned and evolutionary changes in distribution channels. Journal of Retailing, 50, 79–91; 103.

13.

Harrigan

K. R.

(1983). Strategies for vertical integration. Lexington, MA: Lexington Books.

14.

Hofer

C. W.

Schendel

(1978). Strategy formulation: Analytical concepts. New York: West Publishing Co.

15.

Justis

R. T.

Taylor

Nielsen

(1986). The franchising economy. In Proceedings of the First Annual Conference of the Society of Franchising. Omaha, NE.

16.

Laventhol Horwath (1987). U. S. Lodging Industry. Philadelphia, PA.

17.

Lenz

R. T.

(1980). Environment, strategy, organization structure, and performance: Patterns in one industry. Strategic Management Journal, 1, 209–26.

18.

McDaniel

S. W.

Kolari

J. W.

(1987, October). Marketing strategy implications of the Miles and Snow strategic typology. Journal of Marketing, 51, 19–30.

19.

Miles

Snow

(1978). Organizational strategy, structure, and process. New York: McGraw-Hill.

20.

Miller

Kets de Vries

M. F. R.

Toulouse

J. M.

(1982). Top executive locus of control and its relationship to strategy-making, structure, and environment. Academy of Management Journal, 25, 237–53.

21.

Mintzberg

(1978). Patterns in strategy formation. Management Science, 24, 934–48.

22.

Norton

S. W.

(1988, April). An empirical look at franchising as an organizational form. Journal of Business, 61, 197–218.

23.

Nunnally

J. C.

(1978). Psychometric theory (2nd ed.). New York: McGraw-Hill.

24.

Porter

M. E.

(1980). Competitive strategy. New York: The Free Press.

25.

Ruekert

R. W.

Walker

O. C.

Jr. Roering

K. J.

(1985, Winter). The organization of marketing activities: A contingency theory of structure and performance. Journal of Marketing, 49, 13–25.

26.

Sasser

W. P.

Olsen

R. P.

Wycoff

D. D.

(1978). Management of Service Operations. Boston: Allyn and Bacon.

27.

Schaffer

J. D.

(1986). Competitive strategy, organization structure, and performance in the lodging industry: An empirical assessment of Miles and Snow's (1978) perspective of organizations. Unpublished Doctoral Dissertation, Virginia Polytechnic Institute and State University, Blacksburg, VA.

28.

Snow

C. C.

Hrebiniak

L. G.

(1980, June). Strategy, distinctive competence, and organizational performance. Administrative Science Quarterly, 25, 317–36.

29.

Stern

L. W.

El-Ansary

A. I.

Brown

J. R.

(1989). Management in marketing channels. Englewood Cliffs, NJ: Prentice-Hall.

30.

Thompson

J. D.

(1967). Organizations in action. New York: McGraw-Hill.

31.

Venkatraman

Ramanujam

(1986). Construct measurement in organizational strategy research: A critique and proposal. Academy of Management Review, 11, 1–87.

32.