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PROFESSIONAL PRACTICE
Tacit knowledge barriers in
franchising: practical solutions
Denise Cumberland
BRAND-TRUE, San Antonio, Texas, USA, and
Rod Githens
Department of Leadership, Foundations, & Human Resource Education,
College of Education & Human Development, University of Louisville, Louisville,
Kentucky, USA
Abstract
Purpose – The purpose of this paper is to identify barriers that hinder tacit knowledge transfer in a
franchise environment and offer a compendium of solutions that encourage franchisees and
franchisors to leverage tacit knowledge as a resource for competitive advantage.
Design/methodology/approach – Drawing from the research on franchise organizations there are
five barriers to tacit knowledge transfer that present a challenge to both vertical and horizontal
information flow in a franchise environment. It is suggested that when specific behaviors and
processes are adopted to encourage sharing tacit knowledge it is possible to reduce tension and
promote collaboration in the franchise relationship.
Findings – Barriers to tacit knowledge transfer in franchise organizations include: Trust,
Maturation, Communication, Competition, and Culture. Ideas for fostering knowledge sharing are
offered.
Research limitations/implications – The factors identified only partially explain why there may
be resistance to sharing tacit knowledge between franchisees and franchisors. Solutions recommended
will need further testing to assess their impact on creating cultures that embrace tacit knowledge
sharing.
Practical implications – For franchisors and franchisees to encourage tacit knowledge sharing
they will need to recognize and value what each player contributes to the relationship.
Originality/value – The identification of specific barriers to tacit knowledge transfer in franchise
environment sets the stage for future work that can expand on solutions in the franchise context that
potentially has economic and psychological benefits for both parties.
Keywords Franchising, Knowledge management, Information transfer, Knowledge transfer,
Tacit knowledge
Paper type Viewpoint
Overview of franchise systems
Franchising is an $880 billion economic force in the United States and continues to
grow. This business format has shaped the US economy over the last 50 years.
Franchise businesses make up 11 per cent of the US private-sector economy and there
are over 900,000 franchised businesses in the USA (International Franchise
Association, 2005). Despite tight credit markets, franchising continues to attract
individuals with entrepreneurial spirit who seek to establish and manage their own
business. The importance to the economy is not just in the livelihood of the franchise
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1366-5626.htm
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Journal of Workplace Learning
Vol. 24 No. 1, 2012
pp. 48-58
qEmerald Group Publishing Limited
1366-5626
DOI 10.1108/13665621211191104
business owner, but the fact that more than 11 million jobs are created from
franchising enterprises.
Franchising has been studied from multiple levels. Included in these reviews are
theories as to why firms franchise, why an individual purchases a franchise, debates as
to whether franchising is entrepreneurial, as well as how franchise organizations
innovate and cope with change (Baucus et al., 1996; Elango and Fried, 1997; Stanworth
and Curran, 1999). There is, however, a more limited pool of data on tacit knowledge
sharing ideas that could aid franchising organizations. This paper uncovers new
ground in that it not only addresses the systemic barriers to the franchise relationship,
but also provides remedies for building a more collaborative franchise system.
On their web site the International Franchise Association (2005) defines franchising
as “a method of distributing products and services that involves a franchisor who
lends their trademark and business system to a franchisee who, in return, pays a
royalty for the right to use the franchisor’s trademark and system in their business”
(para. 1). Leasing the rights to a brand name, however, is only one part of the franchise
equation. The franchisee and the franchisor have an interdependent relationship. At a
minimum, franchisees expect training, procedures, technical know-how, and expertise
on a host of subjects. In addition, franchisees consider themselves entrepreneurs, not
employees, thereby expecting some level of participation in the decision making
process. Franchisors, in turn, rely on franchisees to provide local market information,
as well as sales and transaction data that helps identify where and how to expand the
franchise for future growth.
The vertical sharing of tacit knowledge in the relationship between franchisor and
franchisee, as well as the horizontal flow of information between franchisees, reduces
risk and improves the opportunity for longer term financial gain (Paswan and
Wittmann, 2009). But harnessing and leveraging tacit knowledge requires franchisees
and franchisors to develop an environment that fosters trust and overcomes systemic
barriers.
This paper emphasizes the intangible asset of tacit knowledge in the franchise
relationship and provides a collection of ideas for how to create conditions which
diminish the barriers that impede tacit knowledge transfer. This paper is broken into
the following sections: a definition of tactic knowledge, a discussion on the importance
of tacit knowledge in franchising, a review of five barriers to tacit knowledge sharing,
and a range of macro and micro approaches that could help foster tacit knowledge
sharing in a franchise relationship.
Tacit knowledge
The concept of intuitive or uncodified knowledge has been brought forward by several
theorists including Nonaka and Takeuchi (1995) who suggested that knowledge can be
classified as either explicit or tacit. Explicit knowledge is knowledge that is written
down and easily transferred from one individual or organization. Because it is in
written form, however, it is highly susceptible to being copied by a competitor. Tacit
knowledge, on the other hand, is gained through experience and is far more
challenging to explain because it exists in peoples’ heads. Often the only way to share
this information is through a form of tutelage with the person who possesses the
knowledge. Tacit knowledge relies on storytelling, demonstration, and other more
abstract means of sharing know how.
Tacit knowledge
barriers
49
Dreyfus and Dreyfus’s (1986) empirical studies of pilots, drivers, chess players, and
adult learners of a second language led to their theory of five stages of skill acquisition.
They suggest that individuals progress from rule centric knowledge based learning at
the novice stage towards the proficient and expert stages when relying unconsciously
on past experiences to guide behavior. Their work further highlights the value of
employee longevity in Japanese firms as a business advantage over American
businesses. Their premise is based on Japanese employees typically staying with one
company throughout their career, which provides an intuitive level of knowledge that
American firms struggle to duplicate because of high employee turnover (Dreyfus and
Dreyfus, 1986). The value of intuitive knowledge was also explored by Boisot (1998),
who maintained that Japan’s strong preference for uncodified knowledge aided
Japanese manufacturers by reducing the ability of competitors to duplicate their
products. The more recent expansion of Japanese manufacturing firms into
international arenas, however, resulted in codification which has opened the doors
to imitation (Boisot, 1998).
Because tacit knowledge is embedded within individuals versus embedded in
training manuals, it is much less susceptible to being exploited by competitors and
therefore becomes an even more valuable commodity to capture and protect (Lei et al.,
1997). 3M Corporation, widely recognized as one of the most innovative companies in
the world, nurtures tacit knowledge sharing by encouraging individuals to share ideas.
This company values tacit knowledge based on the belief that the greater good of the
company is served when individuals share versus hoard information (Brand, 1998).
Importance of tacit knowledge sharing in a franchise system
In a global marketplace where speed to market is critical, organizations must be able to
transfer knowledge rapidly and effectively to compete. Drucker (1993) argued that
knowledge is not just a source for competitive advantage, but rather knowledge
outweighs all other production factors in terms of importance. There is documented
evidence that when organizations become effective in transferring knowledge they
have a longer life span than organizations which are unable to master this process
(Baum and Ingram, 1998). Wiig (1997) maintains that business organizations must first
identify the knowledge that exists and then create procedures for capturing and
sharing that knowledge as a means to boost their “intellectual capital portfolio.”
There are multiple methods used in transferring knowledge within organizations.
Some of the more traditional approaches include job training, published standards and
procedures, online portals, and other web sites that provide reference materials. Other
knowledge transfer methods that are less obvious, but still critical to knowledge
transfer include verbal communication, demonstrations, 1-800 help lines and shared
exchanges between colleagues, strategic alliance partners, and suppliers. All of these
widely used methods for transferring knowledge utilized by corporations are employed
in a franchise environment.
The ability to share information and transfer knowledge from one group to another
is central for organizations that are “interconnected” (Argote et al., 2000). Franchise
chains qualify as interconnected organizations and have the potential to garner greater
rewards because they offer an expanded base of experience when compared to a single
business enterprise (Argote et al., 2000). But do franchise systems reap this advantage?
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Or are these systems plagued by hierarchical cultures that funnel information
downward and are not willing to listen to experiences gained in the trenches?
In a study by Szulanski (2000), he argued that knowledge transfer was arduous,
time-consuming, and complex to manage in organizations. In a franchise system there
is an added level of complexity because knowledge transfer occurs beyond the
corporate entity, into separate organizations frequently comprised of many different
partners. These interconnected organizations, or franchisees, are typically separated
by geography and vary in size, scope, and degree of business experience. In most cases,
they have cultures of their own, distinct from the franchisor and other franchisees.
Franchisees often have an abundant amount of tacit knowledge because they are
intimately involved in their business. They have a handle on consumer preferences,
pricing thresholds, insights on marketing tactics, competitive intelligence, as well as
first-hand experience with local ordinances (Dant and Nasr, 1998). When the franchisee
provides this tacit knowledge back to the franchisor it allows the franchisor to evaluate
the merit of building out the market through expansion or acquisition, set pricing
recommendations, and uncover new solutions to drive greater customer satisfaction
and higher sales.
In the fast food franchise sector, franchisees have been credited for generating new
procedures and product ideas that create more market value for the franchisor. In an
empirical study on learning transfer by Darr et al. (1995), researchers learned that
fellow franchisees were quick to adopt a cost saving procedure for topping pizza once
they saw the process in action. Furthermore, once the franchisor learned of the practice,
the process was soon adopted in 90 per cent of the stores across the country. In the
arena of new products, KFC’s Extra Crispy Strips were developed by a group of
franchisees in Texas (Darden, 2002). In the McDonald’s system, the Filet-o-Fish
Sandwich, the Egg McMuffin, and the Big Mac all bubbled up from franchise operators
attempting to improve sales (Shook and Shook, 1993).
How welcomed this type of tacit knowledge is received by the franchisor, however,
varies. Franchisors often rely heavily on explicit knowledge transfer mechanisms
because they promote consistency and standardization. Traditional training and
development helps ensure reproduction of the business model, maintenance of quality
control, and survival of the brand (Dant and Gundlach, 1999; Epinoux, 2005; Phan et al.,
1996). This explicit training is often transmitted in manuals, operating procedures,
policy guidelines, and brand standard documentation (Sorenson and Sorenson, 2001).
While explicit knowledge should be easier to transfer, the degree to which franchisees
welcome these various codes, regulations, and standards varies. Reluctance from
franchisees may occur when they assume their own franchisee knowledge is more
practical versus corporate procedures that assume ideal conditions, which never exist.
There are numerous factors that determine whether a franchise operation succeeds.
Successful business enterprises understand that knowledge is a two-way street
requiring those on the front lines and those in the executive suites to share tacit
knowledge. The next section of this paper explores five barriers to tacit knowledge
transfer in a franchise environment.
Barriers to tacit knowledge transfer in a franchise system
When the literature on knowledge management, franchising and strategic alliances are
pooled five common barriers to tacit knowledge surface:
Tacit knowledge
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(1) trust;
(2) maturation;
(3) communication;
(4) competition; and
(5) culture.
The trust barrier
In a business environment, much like other social contexts, participants decide whether
to share information based on their perceptions of the recipients as a friend or foe.
Husted and Michailova (2002) diagnose a condition they term “knowledge-sharing
hostility.” These scholars maintain that the process of sharing knowledge is messy,
complex, and hands-on. It requires both sides to be fully engaged and have a level of
trust in one another. A study by Rousseau and Tijoriwala (1999) in the healthcare field
found that a high level of trust allows for more acceptance of organizational change
and negates the need for continual information seeking. Much like any organization,
franchise organizations move through changes in leadership, organizational structure,
and processes. If a franchise organization has undergone numerous corporate owners
or is plagued by legal issues, there is less chance for collaboration and tacit knowledge
sharing (Husted and Michailova, 2002; Szulanski, 2000).
Concern about self-serving behavior (Mohr and Spekman, 1994) in a franchise
relationship hampers the ability to build a trusting relationship. The franchisor may be
concerned that franchisees are falsifying sales information to reduce royalty fees or not
following protocol on operational processes. Franchisees, in turn, are concerned about
franchisors infringing on their territory, creating monopolistic supply chains that
generate additional revenue for the franchisor, and discounting programs that drive
sales at the expense of profits (Pisano, 1988).
Some theorists argue that this divergence of goals between franchisees and
franchisors is why franchisees form alliances with each other and distance themselves
from the franchisor as much as possible (Altinay and Wang, 2006). When a
relationship is transactional and defined primarily by a legal contract, franchisees may
be more likely to fear opportunistic behavior on the part of the franchisor. This form of
paranoia is an inhibitor to tacit knowledge sharing.
Conversely, when franchisors and franchisees have successful collaborations, trust
emerges (Todeva and Knoke, 2005). To garner trust among franchisees it is incumbent
on franchisors to demonstrate good faith efforts to grow franchisees’ sales and profit.
Likewise, franchisees must prove they are willing to partner and participate actively in
the brand building process. This suggests that longer relationships between franchisor
and franchisees are valuable because repeated positive experiences generate higher
levels of confidence and lessen the concern that the other party is self-serving.
The maturation stage barrier
Organizations in their formative stages have been shown to welcome knowledge
sharing (Argote and Ingram, 2000). Conversely, organizations in the mature stage of
their life cycle may be less likely to adopt new ideas that require abdication of the old
ways of doing things (Szulanski, 2000). This maturation barrier holds true in a
franchise system as well. Franchisees new to the organization are willing to learn from
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the franchisor because they are eager to protect their investment and they are less
likely to have created alliances with fellow franchisees. Seasoned franchisees
meanwhile are more likely to hold onto the old way of doing things because as the
saying goes, “if it ain’t broke, don’t fix it.” In addition, franchisees with longer tenure in
the organization are more likely to have experienced the failure of ideas or processes
espoused by the franchisor. This may create a jaded point of view about the need for
change.
The communication barrier
Communication is at the heart of a franchise relationship and the method for how
information flows determines the health of the relationship. Open and candid
communication without fear of reprisal breeds a healthy franchise partnership (Mohr
and Spekman, 1994).
In a franchise system, each party has a role in information exchange. Franchisees
are dependent on corporate offices for clear, timely, and accurate information on
operational, marketing and other procedures. Conversely, franchisors need accurate,
relevant timely sales, transaction, and customer information from franchisees. But
explicit knowledge transfer is only one aspect of organizational learning. The diffusion
of tacit knowledge transfer between franchisor and franchisee offers the opportunity to
facilitate improvements such as new ideas that drive sales growth, margin
improvement, or labor savings.
Several factors are likely to influence the willingness of franchisees to divulge
financial information to franchisors. Along with the economic incentive noted earlier,
“survivor mentalities” may emerge on both sides. Power on one side, as argued by
Galbraith (1956), creates a natural need for power on the other side. A franchisee may
opt to withhold information from the franchisor as part of a larger power struggle
between the two players in the relationship.
Single unit franchisees, also known as “mom and pop shops” may simply wish to be
left alone and do not want the franchisor meddling in their affairs. Franchisees who
own multiple units are in a more powerful position because of their financial resources
and their growth orientation which makes them more valuable to the franchisor. These
multiple unit operators are more likely to have a closer relationship with the franchisor
which may encourage more open communication, feedback, and sharing of ideas
(Weaven, 2004).
The competition barrier
Belief that the franchisor or other franchisees are competitors discourages sharing of
tacit knowledge (Szulanski, 2000). Competitive tension can stem from the franchisor
owning corporate controlled units which co-exist in locales with franchisee units or if
there are other nearby franchisees in the same trade area. The risk of revealing too
much information to another franchisee or to the franchisor creates a paranoia that
impedes knowledge transfer (Simonin, 1999).
A factor that can decrease the internal competitiveness in a franchise relationship is
an external competitive threat. Studies by Dant and Nasr (1998) have shown that
franchisors and franchisees are more likely to “band together and share information”
when there is an external competitive threat.
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The culture barrier
The term “organizational culture” has been defined in multiple ways, but Schein’s
definition is well respected in the organization development literature. He defines
culture as “a pattern of shared basic assumptions that the group learned as it solved its
problems of external adaptation and internal integration, that had worked well enough
to be considered valid, and therefore, to be taught to new members as the correct way
to perceive, think and feel” (Schein, 2004, p. 17).
The culture of an organization influences whether knowledge is or is not transferred
(King, 2008). In a franchise relationship, the asymmetrical power relationship serves as
one barrier to knowledge transfer (Todeva and Knoke, 2005). The franchisor controls
the relationship because franchisees must play by the franchisor’s rules and
regulations since they are leasing the brand name and do not have ownership rights
(Stanworth et al., 1983). In a hierarchical culture which operates in a controlling
manner, tacit knowledge transfer will be sacrificed because franchisees will be less
willing to share their own innovations (Stanworth et al., 1983).
Subcultures also play a role in franchisee relationships because each franchisee has
their own distinct set of beliefs, norms, and practices. The cultures of these units may
or may not mesh with the corporate culture of the franchisor. There is a tendency for
franchisors to be seen as having bureaucratic cultures which rely on dictating the rules,
regulations, and technology down toward their franchisees. Franchisors expect that
franchisees will conform and adopt a similar set of beliefs, norms, and practices.
Because franchisees are typically a step closer to the customer, they tend to have
service-oriented cultures. In service-oriented cultures, the focus is on fulfilling the
customers’ needs first (Want, 2003). But focusing on customer needs may create
different approaches in various markets that may or may not be shared with the
franchisor.
Ideas for fostering knowledge sharing
Before a prospective franchisee moves forward with any contractual agreements, they
should learn about the history of the franchisor, visit their offices, talk to employees,
visit other franchisees, and come to a deep understanding of the franchisor’s
organizational culture to determine if he or she will be able to fit and follow that model.
In addition, the organizational cultural profile (OCP), developed by O’Reilly (1983) to
assess person-culture fit, could be implemented to help investigate fit before contracts
are negotiated and signed.
Once franchise relationships have formed, Paswan and Wittmann (2009),
recommend that franchisors evolve from a traditional franchise approach to a
network franchise system to build a higher level of trust. These theorists define a
traditional franchise system as being heavily focused around communications and
instructions such as training manuals and procedures. They maintain that a network
franchise system, on the other hand, embraces horizontal flow of knowledge where
everyone participates in a more free flowing exchange.
Paswan and Wittman’s work supports Elango and Fried’s (1997) conclusion that
franchisees are more engaged if they perceive the relationship with the franchisor is
more of a partnership where they can participate in the decision making process. The
greater the length of time in the relationship the more secure the franchise can become
in offering upward flow knowledge to the franchisor.
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To build a trusting relationship, both sides must be willing to learn from each other.
Franchisors encourage trust by involving franchisees in the decision making process,
listening to their ideas, and providing incentives for knowledge sharing. Franchise
advisory boards are mechanisms that allow franchisees and franchisors to meet on a
regular basis to gain ideas and share input around processes and procedures.
Franchisors can also reward franchisees who serve on franchisee committees, agree
to test products, or marketing promotions and provide mentoring to fellow franchisees
(Paswan and Wittmann, 2009). One caveat, if there is a hostile situation such as a
pending lawsuit, franchisors must first solve that issue before tackling methods that
foster shared learning.
To further reduce the trust barrier, the focal point of competition must be geared
toward external entities to create a single-minded purpose between franchisor and
franchisee. This could be done through education on industry data that identifies
external competitor market share growth and highlights competitor activities.
Another possibility to reduce internal competitiveness between franchisees is to
align franchisees based on strategic philosophies to facilitate tacit knowledge sharing.
A qualitative study by Darr and Kurtzberg (2000) in a pizza franchise discovered that
franchisees with similar strategies are more likely to share information. Interviews and
observations among franchisees with expansionist strategies found a tendency for
these franchisees to share new ideas and information via phone or meetings with other
expansion-oriented franchisees. A similar pattern of knowledge sharing was found
among franchisees with a cost cutting focus. This research suggests that informal
knowledge transfer occurs when franchisees have a similar business strategy.
Franchisors could use this information to create franchisee councils based on business
strategy, thereby encouraging an environment more prone to tacit knowledge sharing.
Since one aspect of knowledge management is to get as much knowledge out of
people’s minds and passed to other people’s minds or into some type of knowledge
reservoir, a franchise system could reward or incent franchisees to share information.
A system of reward for innovative growth ideas would encourage franchisees to step
forward. 3M Corporation, for example, holds internal fairs and invites colleagues from
around the world to examine ideas, on a confidential basis, to transplant ideas from
unit to unit (Brand, 1998). A franchise system could mirror this idea at the annual
convention and create a “knowledge fair.” Instead of a typical franchise convention
where the franchisor provides trainers to pass on tools and information, franchisees
could discuss and demonstrate best practices for fellow franchisees. Franchisees who
contribute to the shared learning could be rewarded either monetarily or recognized
with an award. By stimulating a level of entrepreneurial thinking and rewarding the
sharing of those ideas, a franchise business is more likely to be innovative and thrive in
a competitive environment.
Franchise systems must grapple with the unequal balance of power if the goal is to
promote tacit knowledge transfer and organic learning. Understanding and
overcoming this barrier requires a franchisor to create and promote a culture of
know-how that encourages sharing of information. This could take the form of online
portals where franchisees can discuss ideas with individuals within the corporation or
with other franchisees. Quarterly meetings and interactive knowledge-sharing
seminars and workshops may also be worth exploring as a means to reinforce
collaborative knowledge and spark bottom-up feedback.
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Conclusions
Tacit knowledge is gained by “doing” and is difficult to capture and codify. It is
transferred through personal interactions and sharing of experiences versus training
manuals and books. Successful transfer of tacit knowledge vertically between
franchisor and franchisee, as well as horizontally between franchisees, offers a key
strategic advantage to leapfrog the competition and build market share. This paper
suggests that leveraging the collective mind power in a franchise organization begins
by understanding five barriers that impede tacit knowledge sharing. If these barriers
could be eliminated or at least diminished, it could encourage innovation that could
lead to new product ideas, accelerate improvements to operating processes, and reduce
turnover by creating innovative compensation models.
Franchising remains a viable business enterprise and the barriers that limit tacit
knowledge transfer have not inhibited the growth of these strategic alliances around
the globe. However, addressing these five barriers could optimize the performance of
these cooperative ventures, thereby creating greater returns for both franchisor and
franchisee.
This paper provides a framework defining the barriers and offers insights on how to
create conditions that diminish the barriers. But, there needs to be more empirical
evidence to validate that if these steps are followed, tacit knowledge transfer will be
optimized. Future studies in this arena would prove valuable to the long-term success
of franchise organizations. For example, a mixed methods study could examine the
effectiveness of various knowledge management tools employed by franchise
organizations to encourage tacit knowledge sharing. A case study of franchisor and
franchisee organizational structures could identify best practices that facilitate sharing
of ideas, open communication, and cooperation. Another research avenue is an
empirical study of franchisor/franchisee cultural fit and the widespread adoption of
franchisee ideas. Further research offers the opportunity to provide additional evidence
regarding the benefits of tacit knowledge sharing. As we gain additional
understanding of how individuals transfer tacit knowledge within these
organizations, organizations can adopt practices that help produce greater value.
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About the authors
Denise Cumberland serves as Principal, Brand Insights for BRAND-TRUE. Her role is to enable
clients to expand their business opportunities by using internal and external organization
assessments. She worked in franchising organizations for 15 years in marketing research, is a
trained focus group moderator and is currently working on her PhD while adjunct teaching both
graduate and undergraduate classes at the University of Louisville. She teaches courses in
Organizational Analysis, Business Ethics, and Marketing Research. Denise Cumberland is the
corresponding author and can be contacted at: d.cumberland50@gmail.com
Rod Githens is Assistant Professor of Workforce and Human Resource Education at the
University of Louisville. He also serves as Director of the MS in Human Resource Education
Program. His primary research interests include e-learning, postsecondary workforce
development, difference and diversity within organizations, and action research. In his
previous career, Rod worked for several years in the corporate sector doing human resources
work. In his last corporate position, he worked as the HR manager in a large division of a Fortune
100 company.
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