Entrepreneurial Orientation and Performance in Franchise Networks: The Mediating Role of Innovation

This paper investigates the mediating role of innovation in the relationship between franchisors’ entrepreneurial orientation and performance within franchise networks. Franchising is an entrepreneurial partnership between franchisors who have responsibility for developing the system, and franchisees who execute standardized practices and procedures set out by their franchisors whilst seeking to improve their unit performance through local adaptations. We employed a questionnaire survey to collect data from a sample of franchisors operating in France. Using path analysis, a sub-part of structural equation modelling, we provide evidence that franchisors’ entrepreneurial orientation is positively related to franchise network performance. In addition, we show that this relationship is mediated by innovation outputs. These relationships are moderated by the network’s experience in franchising, which suggests that being new is a liability for young networks. These relationships also depend on the type of innovation introduced—“front-office” versus “back-office” innovations. In particular, our results show that the positive relationship between front-office innovations and franchise network performance is negatively moderated by the franchising rate. Overall, these results suggest that franchisors should achieve a strategic alignment between entrepreneurial orientation and organisation structure in order to manage entrepreneurial tensions and enhance network performance. JEL classifications: L25, L26, O31