Resumo

The organizational decline is still under-investigated, but like doctors that try to understand illnesses to provide life, the understanding of the declining process can provide longer business cycles and prevent failure (Serra, Pinto, Guerrazzi, & Ferreira, 2017). So, this paper seeks to explore the organizational decline in franchise systems, based on the stakeholder theory. In a franchise system, franchisor and franchisee are stakeholders because they influence their goals mutually (Freeman, 1984).

There are articles regarding failure of companies working under franchise system (Holmberg & Morgan, 2003; Rodríguez-Rad, Rondán-Cataluña, & Macías-Molina, 2017; Falbe & Welsh, 2007; López-Fernández & López-Bayón, 2018). However, little is known using stakeholder models. I aim to feel this gap. Therefore, I seek to answer to research questions: How do companies in franchise system deal with decline based on stakeholder theory? In face of decline, how do franchisor and franchisees act?

This research has five background theories: (1) literature of business life cycle because the last part of it is decline and is key to understand what comes before decline; (2) declining process itself to clarify how it happens and how companies respond to it; (3) two models of stakeholder management, which are the theoretical lens of this paper (4) franchise system, as we expect to comprehend how this system works (5) previous literature on the franchise decline and what is the gap we contribute.

Since this paper seeks to understand the phenomenon of declining process through the lens of stakeholder theory applied to franchise system, a qualitative approach fits this goal best (Denzin & Licoln, 2006). Following Eisenhardt and Graebner’s (2007), the chosen research strategy was multiple case study. The unity of analysis are companies that use franchise system to operate. The data collection was done with in-depth interviews with franchisors and franchisees.

In the case of the influence of stakeholder matrix (Pajunen, 2006), “Fast-food 1”, “Chocolates”, and “Aesthetic” franchisees are minor stakeholders, because one franchisee does not have more network power than other franchisees and franchisor’s source dependency over the franchisee are also low. For “Fast-food 2”, no franchisee has more power than other franchisees and franchisor source dependency over franchisees is high, so it holds a potential stakeholder position.

Analyzing the interview, I noticed that “Fast-food 2” franchisees began to be unsubordinated to the franchisor because franchisor became unsupportive. The franchisees that survived to the decline decided to follow on by themselves, without being under franchisor`s standards. So, I infer that one of the reasons for some franchisees to fail happened because they followed standards of franchisor. This is in line with López-Fernández and López-Bayón, (2018).

Serra, F. A. R., Pinto, R., Guerrazzi, L., & Ferreira, M. P. (2017). Organizational Decline Research Review: Challenges and Issues for a Future Research Agenda. BAR - Brazilian Administration Review, 14(2), e160110. Freeman, R.E. (1984) Strategic Management: A Stakeholder Approach. Pitman, Boston. Pajunen, K. (2006). Stakeholder Influences in Organizational Survival. Journal of Management Studies. 43. 1261-1288. López-Fernández, B., López-Bayón, S. (2018) Antecedents of early terminations in franchising: franchisor versus franchisee cancelations. Small Business Economics 50, 677–695.